China pauses in its push to globalize its currency

Last month there was a flurry of annual seminars in which senior Chinese representatives met with the great and the good of the rest of the world. Both the China Development Forum in Beijing and the Boao Forum for Asia in the island territory of Hainan, for example, adopted a dialogue whose theme has been consistent: China’s engagement with the world becomes constantly deeper and more intensive. In recent years, though, that dynamic has not incorporated the People’s Bank of China and its currency, the renminbi. In the past, officials from the PBoC liked to sketch out an outlook in which the renminbi (which means “the people’s currency”) would perform an ever-greater role in international transactions. But after the extensive market debacle of 2015, that drive to expand ownership swung into reverse. Today, the renminbi is less international by three key measures than just before that meltdown. That leaves the US dollar’s status as the reserve currency of the world unchallenged, for now at least.

At its climax more than four years ago, the Chinese currency had developed into the fourth most used currency for cross-border payments. But in February this year, the renminbi was suspended in fifth, which is where it has been for most of the preceding few years, having fallen bigger in monthly volumes, year-on-year, than other global currencies. Whilst yuan-denominated trade accounted for 30 percent of total Chinese trade in 2014 but has since lapsed to about half that level.

To be clear, there is one constituency that is producing a consistent interest in the renminbi the world’s central banks. Their holdings of the Chinese currency, even though still puny, are picking up. As of the third quarter, only 1.8 percent of the world’s reserves were in renminbi, according to IMF data. But up from 1.1 percent when the Chinese currency first was added to the data at the end of 2016. Still, the deeper tendency, call it the de-internationalisation of the renminbi, survives intact, indeed even though China appears to be preparing the foundations for wider ownership.