Introduction
The Chinese Renminbi (RMB) has become an increasingly important financial asset as Chinese economy grows. As the Chinese economy further develops and continues to mature, its presence within the global financial markets is constantly expanding. The rise of the Renminbi is part of a larger Chinese strategy to become a major economic power on the international stage.
This article will discuss the role of the Renminbi in China’s financial strategy, focusing on how the currency is used for international trade and investment, and how its presence in the global markets has grown in recent years.
The Chinese Economy: A Rising Power
For the past few decades, the Chinese economy has been one of the most rapidly growing in the world. China has experienced remarkable economic growth, becoming one of the largest economies in the world, with the second-largest GDP after the United States. This incredible growth is due in large part to a period of economic liberalization beginning in 1978.
As a result of this liberalization, along with other reforms and initiatives, investment opportunities within China have grown significantly. This has allowed many investors and companies to gain entry into the Chinese markets. Furthermore, the Chinese government has adopted policies that encourage foreign investment, like tax incentives and foreign exchange regulations.
The Role of the Renminbi in China’s Financial Strategy
The importance of the Renminbi in China’s financial strategy is widely recognized. Its role in the Chinese economy is becoming increasingly important as the economy continues to develop and become more connected to the rest of the world.
The Role of the Renminbi in International Investment
The Renminbi is becoming increasingly popular as an international investment asset. Many international investors are turning to the Chinese currency to get exposure to China’s economic growth, entering the Chinese economies via offshore yuan deposits and bonds. The currency has also become a tool for foreign companies and organizations to conduct business in China and they often hold Renminbi as a hedge against exchange rate fluctuations.
The Chinese government has also promoted the use of Renminbi in international trade. In 2013, they introduced the so-called “cross-border RMB settlement program” which allowed importers and exporters to settle transactions in yuan instead of foreign currencies, reducing conversions costs and currency risk. This initiative has been further supported with the development of several financial products that help companies to manage the risks associated with using the Renminbi.
The Role of the Renminbi in Global Capital Markets
The ascendance of the Renminbi in international capital markets is another key part of China’s financial strategy. As the number of people and institutions holding the Renminbi continues to grow, it is being recognized as one of the leading currencies in the world. The Chinese currency is now accepted by many financial organizations, and as of 2019, it is the fourth-most used currency for international payments and the ninth-most traded currency in the world.
The Renminbi has also been added to several benchmark global indexes that measure the performance of various assets and asset classes, such as the S&P 500. This further enhances the presence and importance of the Chinese currency in the international financial markets.
The Rise of the Renminbi as a Reserve Currency
As the Renminbi continues to gain importance as an international asset, its role as a reserve currency is gaining traction. In August 2015, the International Monetary Fund (IMF) recognized the Renminbi as one of its official reserve currencies, putting it on par with the U.S. dollar, the Euro and the Japanese yen.
This move by the IMF adds another layer to the Renminbi’s role in China’s financial strategy. It gives the Chinese currency further recognition in the international financial markets and it incentivizes central banks around the world to increase their holdings of the currency.
Conclusion
The Renminbi is an important part of China’s overall financial strategy and its importance has steadily grown in recent years. The Chinese currency is now widely used for international investments, global capital markets and as a reserve currency. As China’s economy continues to grow, the international presence of the Renminbi is likely to continue to expand, and it will become increasingly important as a financial asset.
