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| Sara Hsu |
Sara Hsu:
The offshore RMB market, with more development, will ... assist the Chinese leadership in reaching some of its financial goals. The leadership confirmed at the National People’s Congress in March that one main target of the reform process is to liberalize the exchange rate; People’s Bank of China Governor Zhou Xiaochuan confirmed that this would be completed by 2020. To this end, the offshore RMB market provides financial infrastructure through which to exchange, hold, and speculate upon the Chinese currency. China is also aiming to further liberalize the capital account. While the extent to which the leadership is willing to go to open up to foreign capital flows is unknown, the offshore RMB market creates a base for foreign holdings of the RMB. As the capital account opens further, increasing amounts of RMB currency transactions and holdings are given a foothold via offshore RMB centers. While the CNH and CNY currencies have diverged in value, it is expected that with further capital account liberalization, the currencies will over time converge, making offshore RMB markets a critical component of a developed financial system.
More in the Diplomat.The ultimate aim of Chinese authorities in establishing offshore RMB markets is to promote the RMB as a major international currency. The RMB is currently the seventh most-used payments currency in the world. However, the RMB accounted for only 1.47 percent of global payments in May, and has a long way to go before it overtakes heavily used currencies such as the euro, the Swiss franc, or even the Canadian dollar. Expansion of offshore RMB markets is a key step in this process, and happily, both international regions and the Chinese leadership are in favor of this move.
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