Sibos 2015: Renminbi, the real game changer

Kicking off a Big Issue Debate session on the final day of SIBOS in Singapore, 47 percent of session participants said in an interactive poll that they believe the Renminbi (RMB) is already an international currency, while 41 percent said it is not and 11 percent weren’t sure.

Commenting on the results, Asia Global Institute Distinguished Fellow Andrew Sheng said that even though restrictions on capital accounts mean the RMB cannot be used freely, it is already a game changer.

Citi Regional Head of Treasury Amol Gupte concurred, saying the RMB is already relevant and will become even more so.

HSBC China CEO David Liao added that despite capital account controls, there are already about US$1.5 billion of cross-border RMB flows and there are investments in RMB as well.

In a second interactive poll, 62 percent of session participants said the IMF should add the RMB to the SDR Basket in 2016 while 20 percent said it should not and 18 percent said they don’t know.

Gupte said he would like to see more capital account convertibility before the RMB is added to the IMF basked, as more trust, transparency and liquidity would be beneficial. While adding it to the SDR basked would not change things materially, Gupte said there might be unintended consequences such as inflows that have a tighter monetary implication

Liao disagreed, saying that the RMB should represent where the currency stands and many central banks want the SDR to legitimize the RMB so they can invest in it. He also noted that China has fulfilled 35 out of 40 IMF criteria for the RMB to become a SDR currency.

Sheng added that he would be very worried if the RMB is not in the basket. The IMF is a major lender to a world in distress and will need more reserves, and the only country that he believes will put resources on the table is China. “If it doesn’t join, the IMF won’t have enough funds for the next market drop.”

Looking ahead in the final poll of the session, 40 percent of session participants said the RMB might rival the Euro by 2025, while 31 percent expected it to rival the Euro by 2020 and 29 percent expected it to rival the Euro in 2030 or later.

Commenting the results, Sheng said that although the RMB can be a reserve currency, whether it becomes a safe haven currency depends on geopolitical and military factors. “It took seventy years for the US dollar to replace sterling,” he elaborated. “I don’t see RMB replacing the US dollar for many years.”

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