Will Market Volatility Hobble Renminbi Internationalization?

来源: CHINA FOREX 2016 Issue 2

Since the renminbi's exchange rate reform in August of last year,market expectations for the renminbi have undergone a significant change. A perception of future appreciation or relative stability has been replaced by expectations of depreciation. Not until March or April this year,did we see an easing of the downward pressure on the currency and a slowing of capital outflows.

Changes in expectations for the renminbi exchange rate also aroused domestic and global concerns over the prospects for the currency's role on global markets. Based on the experience of the Japanese yen,we can see that admission to the elite club of global reserve currencies is not enough to win international recognition. The currency needs to see a continued expansion of its global reserve status. When the Japanese yen was appreciating in past years,it showed continued gains in its use as an international reserve currency. However,its depreciation starting in the 1990s,particularly after the Asian financial crisis,led to a reversal of those gains and its role in the international arena declined. Since then,the global status of the yen has not really improved. From that we can tell that depreciation and expectations of further depreciation are usually not conducive to promoting a greater role for a currency. So,will depreciation expectations mean a declining role for the renminbi on the world stage? The answer could be "no",because the renminbi's situation is quite different from that of the yen.

Currency Volatility

Experience shows that the internationalization of a currency does not necessarily require current account convertibility,capital account convertibility or even capital account liberalization. Nor does it require the deregulation of foreign exchange management or free-floating exchange rates. When the pound and the US dollar took on their roles as global reserve currencies,they did not meet these requirements; their exchange rates were fixed. Both of these currencies were linked to gold and their respective governments promised that the currencies could be exchanged for gold at any time.

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