The Renminbi’s Journey to the World

BEIJING – Recently, HSBC bank released an upbeat survey predicting that China’s currency, the renminbi (RMB), will become one of three global settlement currencies (alongside the dollar and euro) sometime this year. It seems that the RMB’s internationalization has been progressing without anyone really noticing. The key remaining questions concern whether or not the RMB will become an important international currency anytime soon, and whether it is poised to pose a serious challenge to the US dollar’s domination of the international monetary system.

An international currency is used and held beyond the issuing country’s borders, and plays the role of unit of account, medium of exchange, and store of value for residents and non-residents alike. Certainly, there are many potential benefits for China to be gained from the RMB’s internationalization:

·        Elimination of exchange-rate risks to which Chinese firms are exposed;

·        Greater funding efficiency for Chinese financial institutions, thus strengthening their competitiveness in global financial markets;