Prospects for RMB assets in a multipolar world

THE RMB continues to make inroads towards internationalisation, having steadied itself since the 2015 "Aug 11" exchange rate reform which triggered significant capital outflows. Its use has risen to around 40 per cent of China's foreign transactions - surpassing the peak in 2015 - while the RMB has also seen its share in global reserves double since 2016, to 2 per cent this year.

Amid geopolitical tensions, China's desire to promote RMB internationalisation has become more acute - particularly in a dollar-centric global financial system. To be clear, taking the RMB beyond Chinese borders also has deeper roots, as an aging population and the attendant decline in savings rate implies a structural current account deficit in the medium term.

In other words, China needs capital imports all the same. An emerging global multipolar world, further spurred by Covid-19, has accelerated the push, turning an internationalised RMB into a "must-have" from a "good-to-have." At the same time, the additional yield offered by RMB assets (such as Chinese government bonds ) in a globally low-rate environment also has its allure, a tailwind that Beijing could take advantage of.