The birth of a global currency

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The internationalization of China’s RMB is rapidly progressing, according to plan

In China’s remarkable rise on the global economic stage, one key element of the country’s economy has trailed far behind. The renminbi (RMB) or yuan remains an exotic instrument, rarely used outside the Chinese borders and barely understood.

China's renminbi is one of most important currencies in world
Photo: Thomas Ruecker

The world’s second-largest economy has a currency that ranks 14th most used in the world, just ahead of the Danish krone, behind the Russian rouble and miles away from the euro and US dollar, No. 1 and No. 2, respectively.

But that is quickly changing. The internationalization of the RMB, as engineered by the Chinese government, is happening at warp speed. At the start of 2012, the RMB ranked 20th among international currencies, according to SWIFT (Society for Worldwide Interbank Financial Telecommunication). It leaped six spots in nine months.

“At some point in the next decade to come, the RMB will be a major player among global currencies,” said Chris Davies, Deputy CEO of HSBC China. “This is very much a step-by-step process, a technical process, as the currency moves from being ‘ring-fenced’ to one more convertible globally.”

Mr. Davies was one of several HSBC China experts speaking to business executives in Chicago and Los Angeles about the RMB and strategies for dealing with it. HSBC is the largest foreign-owned bank in China, with 133 branches currently and 15,000 employees in the country encompassing banking business as well as processing centers.

Tellingly, in a poll taken at the Chicago event, 95% of those in attendance said they were already doing business in China, but nonesaid they were using the RMB for trade settlement. Considering that less than a decade ago the RMB was a closed currency, with major barriers to getting it out of the country and no market for it anyway, that is not surprising. Businesses are just catching up to what could arguably be called the birth of a new global currency.

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