Among measures taken by the Chinese authorities is the introduction of prime lending rates by banks and “negotiable certificates of deposits”, following the Third Plenum.
“The benefits of not being held hostage to other currencies, of being able to manage their own currency directly, is something the Chinese want to promote,” commented Mr Wee. He added, however, that the Chinese had not opened the floodgates. “They have been swift in making micro changes, but these are still small steps. Ultimately they still have the quota system in place to limit foreign investment allowed into the country,” he said.
Ms Brooks said the Chinese authorities would decide the timing of free trade in the currency. As trade settlement in the renminbi has grown, China has become more content to allow the renminbi to appreciate on a daily basis at a steady pace, she said. But for advisers, finding ways to tap into the investment potential of the renminbi’s rise was “not as straightforward”, she said.
The growing importance of China and the renminbi in the world economy raises the question of whether, ultimately, the renminbi could overtake the dollar as the world’s primary currency for transactions and even for central bank reserves.
The World Gold Council noted in a March 2013 report on central bank diversification strategies: “Despite limited availability and convertibility of its currency, China’s rise in the global economy has forced central banks to seriously consider renminbi-denominated assets.”
Some are sceptical. Mr Wee expects the renminbi to become “a very major currency” by 2020 and possibly the second most used currency. But to overtake the dollar as the world’s foremost transaction and reserve currency would require several prerequisites, including open capital markets and full convertibility of the renminbi.
Mr Coulton agreed the renminbi was going to become more important. But for it to replace the dollar, given the greenback’s dominance of the global securities market, was a separate issue. “I do not foresee that in five, 10, 15 or 20 years,” he said.
Opening up the capital market would create “potential instability and volatility”, he said. “It is not a risk the Chinese need to take at the moment.”
Ms Brooks agreed that the Chinese authorities want to avoid the “huge imbalances” that would be created by full liberalisation of financial systems. The renminbi’s use in financing global trade is increasing, but it is “a step forward on a very long path,” she said.
Alison Warner is a freelance journalist
