The development of onshore market is the key of RMB-internationalization
By far, Renminbi is the world second large trade currency ranked after the US dollar and the proportion held by RMB in payment is also increasing, taking the 7th place in the world. Among the 50-odd countries which have trade contact with China, RMB payment has exceeded 10% and RMB is now used in 161 countries. During such expansion process, the mode of RMB offshore market + clearing bank is gradually shaped.
What further opportunities and challenges will RMB bring for us? There are mainly two types, Shanghai type and Hong Kong & Macau type. From October 2010 to the end of October 2014, in terms of RMB international payment, the market share of Mainland China has declined from 29% to 3% while Hong Kong has be up from 68% to 70% and other area has increased from 3% to 27%. RMB is the sovereign currency of China, but how is that the level of RMB international utilization of Shanghai is far lower than that of other areas? This is just the background on which Shanghai Pilot Free Trade Zone (SHFTZ) is established. The development of RMB-internationalization cannot rely on offshore market but on onshore market. SHFTZ is a bridge which facilitates Shanghai in shaping an international financial center.
Compared with Hong Kong, RMB under the capital accounts of Shanghai is not yet exchangeable. This means, the financial market of Shanghai is relatively small and its fixed income market and bulk stock market are not developed sufficiently. Shanghai should develop its international finance market with fixed income products and derivatives, and among which commodity products should be the major constituents. China is one of the most important countries of bulk stock products, thus could we price bulk stock commodities by RMB? For instance, if we manage to realize RMB transactions and settlement for crude oil futures, then Shanghai will be the center for RMB internationalization.
Under the new situation of “One belt one road”, China’s excess capacity should be exported to the other part of the world and such export will create new finance arrangements, new demand, as well as new challenges. And the question how to response to those challenges will be extremely important for China.
