A reality check on the status of RMB internationalisation

Our recent client trip to Beijing in November uncovered growing interest among Chinese financial institutions and state-owned enterprises in speeding up the renminbi’s internationalisation, a process initiated over a decade ago. This renewed momentum has been driven by the recent geopolitical shocks and abrupt US policy shifts, which have heightened concerns about the stability of the dollar-centric global financial system and strengthened the perceived need for diversification.

Our examination of the most recent data on RMB usage – on trade settlement, investment, and safe asset and reserve allocation – indicates a two-track pattern. Chinese firms have steadily expanded their use of RMB for trade settlement, but the currency’s global presence remains limited and lags behind the US dollar. We don’t see this changing significantly in the near term.

Structural barriers to rapid acceleration persist. Domestically, China’s own regulatory and institutional constraints and high saving rate limit the RMB’s international circulation. Externally, established reserve currencies like the dollar and euro retain market liquidity and institutional credibility.

Nonetheless, the Chinese authorities have renewed their strategic commitment to developing the RMB’s international role and building a more independent and secure payments system, as articulated in the latest proposal for the 15th Five-Year Plan.

In the near term, we expect the authorities to focus on promoting RMB trade settlement and invoicing, expanding pilot programs for RMB financing, enhancing offshore market liquidity and product offerings under the capital account, and refining financial-market infrastructure and regulations. In the longer term, the currency’s global attractiveness depends on China improving its policy transparency and lowering its structurally high saving rate.