The Long March To Renminbi Convertibility

Although I keep my rmb under the mattress, waiting for appreciation, I am aware international financial markets require more activity than this kind of buy-and-hold strategy.  Here's an update from the Financial Times on recent developments in rmb convertibility.

The Long March To Renminbi Convertibility

China continues quietly to take steps toward convertibility of the renminbi, writes David Pilling of the Financial Times.  In a first, for example, McDonald's issued a small, 200 MM rmb denominated debt ($29 MM) in Hong Kong.    

For the most part holders of trade-related rmb have little opportunity to invest, i.e.  foreign firms holding the rmb must either exchange the currency or put  it into low interest banking accounts.     Pilling summarizes recent Beijing efforts to allow trade settlements in rmb (2009), offshore banks to exchange rmb among themselves (July) and now allow offshore banks to invest in China's interbank bond market .   Hong Kong expects to play a key role any markets in offshore rmb, similar to the way London maintains markets for overseas US dollars, Eurodollars.

However, Beijing's motivation for these still small steps is unclear.  Pilling explains it could seen as an effort toward establishing the rmb as an alternative reserve currency to US dollars, a way to remove currency middleman in China-centric trade, or a more humble effort to stimulate China's nascent domestic debt market, where bonds seldom trade and are usually held to maturity without risk or 'price discovery.'  Most agree Bejing is far from comfortable with a fully convertible rmb in which capital can flow in or out of China in an instant.

Read more about the renminbi convertibility