The renminbi as an international currency: the next instalment of China’s economic reforms

"The renminbi’s value is kept stable while the currencies of the capitalist countries are in a state of constant fluctuation … A growing number of countries and regions now use the renminbi to quote prices and settle accounts in trade and other dealings with China" Xinhua 21 September 1974 "It takes a long time for a country’s currency to be widely accepted in the world … making the RMB into an international currency will be a fairly long process’ President Hu Jintao reported in Peolpes Daily 17 January 2011 "It is the basic policy of the People’s Bank of China to let the renminbi compete with U.S. dollar or euro fairly in the international market … What we are doing now is nothing but remove discrimination against the renminbi and let it act just as other reserve currencies Yi Gang, Vice Governor, Peoples Bank of China, quoted Xinhua 27 January 2013" Almost four decades separate the above statements and illustrate the long-term importance attached by the Chinese leadership to a stable and international currency that is widely accepted as a form of trade settlement. This attachment stems from the desire to remove any perceived unfairness or disadvantages that a non-deliverable currency implies. The statements also capture the strong sense of caution that has underpinned capital account reform. Such caution is hardly surprising. Studies of currency internationalisation have in general confirmed that the process and evolution of an international currency is uneven and unplanned, arising as a side effect of the economic and financial development of the country in question (Frankel 2011). The challenges are undoubtedly magnified for a developing or transition economy