Why yuan's internationalisation has slowed

London

IN October 2016, the International Monetary Fund introduced the yuan or renminbi into the special drawing right, its composite currency unit, in recognition of the currency's strengthening global reserve status. Much fanfare accompanied the move.

In the 12 months since, however, the yuan's internationalisation has slowed down. China's growth model precludes further opening of its capital account and loosening of domestic financial repression. Ensuring domestic financial stability and reform, as well as a lower, more sustainable growth target, will need to precede the next phase of currency liberalisation. Until 2015, the rise of the yuan was considered a one-way trend. As China grew in importance, it embarked on a tightly controlled, incremental process of liberalising its capital account and currency. This led to increased global usage, starting from a low base. Extrapolating the upward trajectory suggested the yuan was certain to become one of the world's major currencies, alongside the dollar and euro. However, that trend began to stall around August 2015.