Cause for optimism on RMB internationalisation

THE renminbi's inclusion in the International Monetary Fund's (IMF) Special Drawing Right (SDR) currency basket, which formally came into effect on Oct 1, is a significant landmark in the renminbi's long march to becoming a leading international currency.

Its inclusion is unprecedented in several respects. Not least of these is that it is the first currency issued by a developing country to become one of the basket's five member currencies, though China has yet to realise the full convertibility of its capital account according to the IMF's definition or criteria. With a weighting of 10.93 per cent, it is the third largest currency in the basket, below only the dollar and the euro.

Symbolically at least, this reflects the growing importance of Chinese economic power, financial markets and trade volumes. At the end of 2015, Chinese exports and imports accounted for 14.6 per cent of total world trade. Renminbi settlement of Chinese trade has increased from almost zero a decade ago to around 30 per cent as at the end of this year's second quarter. The renminbi is now the fourth largest currency in international financial transactions, including renminbi-denominated bonds, equities, foreign exchange transactions, and direct investmen…