EconoChina

A blog on Chinese economy & society

Posts Tagged ‘reserve currency

Baby steps towards full convertibility for RMB

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China has been aggressively promoting the usage of RMB in international trade, preparing it for the eventual full convertibility of the currency. Besides opening access to its domestic bond market to selected foreign investors that I blogged before, it also starts to allow trading of the RMB against Malaysian Ringgit in its domestic FX market today. The Ringgit is a good guinea pig. Since China is already Malaysia’s largest trading partner, it makes sense to try to settle bilateral trade in their respective currencies rather than through the USD. On the other hand, both are effectively soft-pegged to the dollar, eliminating possibility for wild currency swings.

Separately, McDonald’s is selling $29mn RMB denominated bonds in Hong Kong. This is the first non-financial foreign entity to try this issuance. Yes, China is sticking to its game plan, that is to promote more usage of the RMB in international trade and in financial products. All these efforts eventually will lead to full convertibility a few years down the road, and challenge the USD’s role as the global reserve currency for real.

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Written by Cindy Luk

August 19, 2010 at 6:58 pm