The Offshore Renminbi: The Rise of the Chinese Currency and Its Global Future

Reveals the truth about China′s big plans for its national currency and the global implications of an "internationalised" renminbi

"Robert and Kelvin have done an excellent job detailing the infrastructure of renminbi markets, in China and offshore, and describing specific policy moves to encourage internationalisation of the currency. Its accession to reserve currency status will depend on removal of Chinese exchange controls, acceptance of a floating yuan, and probably the end of interest–rate fixing within China, moves that could take much longer than the authors suggest. But as China moves down this path, this book will be a good guide to understanding its implications."
Charles Dumas, Chairman and Chief Economist of Lombard Street Research

"Minikin and Lau have written a timely, comprehensive, and useful book on what may be the most important opening of Chinese financial markets for years. China needs to embrace deeper reforms to continue to grow, and the relaxation of capital controls and a growing international role for the renminbi will be essential steps in that process. Understanding what is happening in Hong Kong and beyond with the renminbi is vital for anyone interested in Chinese growth."
Fraser Howie, Managing Director, CLSA Singapore and co–author of Red Capitalism

"The authors have provided a comprehensive and illuminating description of the internationalisation of the renminbi, one of the most significant financial stories of our time."
Robert Cookson, Asia Markets Correspondent at the Financial Times

Foreword ix

Preface xiii

List of Acronyms and Key Terms xvii

CHAPTER 1 The New Global Role for the Renminbi 1

A Longstanding but Failing Path 4

Allowing Renminbi Markets to Flourish 9

Political Tailwinds for Internationalisation 13

Challenges and Consolidation Risks 19

The Renminbi in a Multipolar World 23

CHAPTER 2 Linking the Offshore and the Onshore Renminbi Markets 25

International Transactions in a Domestic Currency 25

The Starting Point for Renminbi Internationalisation 31

Investability: Opportunities and Challenges 40

Timing Convertibility 45

PBoC and Exchange Rate Policy 50

The Advantages of the Offshore Renminbi 53

CHAPTER 3 The Birth and Evolution of the Offshore Renminbi Market in Hong Kong 57

A Chronological Look at Key Policy Liberalisations 59

More on Renminbi Trade Settlement in the Post Big Bang Era 79

From Renminbi Trade Settlement to Offshore Renminbi Deposits 93

CHAPTER 4 New Markets New Jargon, New Opportunities 101

The Chinese Yuan in FX Spot 101

A New Diversity of Forward Markets 109

Opportunities in the CNH Markets 112

Tracking Returns in CNH Deposits 121

The Dim Sum Bond Market Matures 126

CHAPTER 5 Geographical Expansion of the Offshore Renminbi Universe 131

From Hong Kong to Haiwai through Trade 133

Renminbi in London and the Hub–and–Spokes Model 139

Direct Renminbi Cooperation with Mainland China 142

Shanghai s Aspiration and Infrastructure Overhaul 147

Hong Kong Is Still in Pole Position 151

CHAPTER 6 Drivers for Internationalisation 163

Public Policy: Replacing USD 168

Economics: China s Role in the Global Economy 174

For Investors: Appreciation but, More Importantly, Diversification 178

For Corporations: Fairer and More Transparent Pricing 182

For Official Reserve Managers: A New Route to Stability? 187

CHAPTER 7 The Rise of the Renminbi and Its Policy Implications 193

The Renminbi s Rise: A Threat to the Hong Kong Dollar? 193

The Renminbi s Rise: A Regional FX Anchor 198

The Renminbi s Rise: The SDR and the IMF 206

The Renminbi s Rise: The US Dollar in a Multipolar World 213

Afterword: The Life Overseas with the Rising Renminbi 217

Appendix: The CNH Timeline 223

Bibliography 229

About the Authors 231

Index 233

Robert Minikin is the Senior Foreign Exchange Strategist with Standard Chartered Bank, Hong Kong. He is a member of the Global Foreign Exchange Strategy team focusing on Northeast Asia FX, with a particular emphasis on "CNH," the new Chinese yuan (CNY) offshore market in Hong Kong. He is a well known commentator on financial market development who is regularly featured both in the print and broadcast media. Mr. Minikin has more than twenty years of experience in financial market analysis. He holds first and second degrees in economics from the University of London.

Kelvin Lau is a Hong Kong based economist covering Greater China, specialising in Hong Kong and the Pearl River Delta in Southern China. Kelvin joined Standard Chartered Bank as an economist in September 2000 and is currently a member of the Greater China research team. With a focus on Hong Kong and the Pearl River Delta (PRD) region in Sourthern China, Kelvin provides macroeconomic analysis and on–the–ground views of major economic issues. His views are quoted by various international as well as local media. He holds a degree in economics from the London School of Economics and Political Science.