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Asia Economy Last Updated: Mar 3, 2014 - 7:53 AM

Internationalisation of China's renminbi
By Finfacts Team
Feb 28, 2014 - 8:43 AM

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An Economist Intelligence Unit report, commissioned by State Street, and published this week examines the future development and internationalisation of China's currency -- the renminbi - - and the pace, process and likelihood of financial reform in the country. It compares the views of institutional investors headquartered in mainland China (excluding Hong Kong and Taiwan) with those based elsewhere. The report is based on a survey of 200 senior executives from institutional investors (IIs) with knowledge of their exposure to renminbi assets.

Key findings include:

  • A majority of institutional investors (IIs) think the renminbi will one day surpass the US dollar as the world’s major reserve currency. Within China there is more optimism: 62% of IIs see a redback world on the horizon, compared to 43% of those outside China;
  • Two-thirds of IIs expect China to complete its financial liberalisation within ten years, with a majority expecting major reforms within five. But there is uncertainty about the direction and urgency of short-term reforms towards this goal;
  • Foreign investors expect China to privatise its banking system sooner rather than later. Nearly half (47%) of foreign-headquartered IIs expect China to privatise its banking system within three years, compared to just 19% of domestic respondents with the same view;
  • Chinese IIs expect offshore renminbi trading to expand at home. While IIs agree that Hong Kong will continue to dominate trading over the next three years, Chinese IIs rank Shanghai and other onshore free trade zones as the second place where renminbi portfolio trading is likely to see rapid growth, while non-Chinese IIs think Singapore is a more likely growth area.

China’s currency, introduced in 1949 on the founding of the Communist People’s Republic of China, is officially known as renminbi. However, it is denominated in units known as yuan. The dual name for the currency is similar to the terms sterling (renminbi) and pound (yuan) for the British currency.

Renminbi is roughly translated from Mandarin as ‘people’s currency’.

The word yuan dates back to around the 16th century and was the local term for the Spanish silver dollar that was used for centuries by foreign merchants trading in China.

Report in English [pdf]

Report in Mandarin [pdf]

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