The Retreat of the Renminbi
The dramatic fall of the renminbi since 2014 reflects the slowing of China’s debt-fueled economic growth and the accumulation of default risks. Unlike just a few years ago, the world now has little, if any, reason to continue stockpiling China's currency.
NEW YORK – “The globalization of the yuan seems remorseless and unstoppable,” pronounced The Economist in April 2014. Indeed, use of the Chinese yuan, or renminbi (RMB), in global payments would double between then and August 2015, to 2.8% of the total, making China’s currency the fourth most used in the world.
Since then, however, this growth has been almost entirely reversed. The RMB’s share in global payments has fallen to 1.6%, knocking it down to number seven. Its use in global bond markets is down 45% from its 2015 peak. RMB deposits in Hong Kong banks are also down by half. And whereas 35% of China’s cross-border trade was settled in RMB in 2015 (with most of the remainder in dollars), that share has fallen to about 12% today.
The RMB’s reversal of fortune reflects four factors in particular.