More needed for yuan to go global

FOR the renminbi to go truly global, it needs more than just cross-border trade flows. China needs to make giant strides in the opening of its domestic market to allow the renminbi to flow more freely between its domestic markets and the rest of the world. This will speed up the currency's emergence as an investment currency and bring the ultimate convergence of onshore and offshore markets closer.

The renminbi is already convertible under the current account and the offshore market is showing strong organic growth. By the end of June 2014, offshore renminbi deposits had exceeded 1.6 trillion yuan (S$352.3 billion). We are optimistic that these flows will continue to accelerate as the proportion of China's total trade settled in renminbi increases.

The volume, however, tells only part of the story. Offshore renminbi liquidity comprises cross-border trade settlement, retail conversion and bilateral currency swaps between China's central bank and foreign central banks. Trade settlement is no doubt a key aspect of the renminbi's attraction, but it alone cannot sustain the desire of the outside world to adopt and use it as a reserve currency.