The rise of any great power depends on its economic and financial
strength. For more than half a century the world’s top currency has been
the dollar, a reflection of America’s economic power. In the past decade
the introduction of the euro has challenged the dollar’s pre-eminence and
accounts for about a third of global foreign currency reserves. But the
recent financial crisis that hit the US and then Europe has cast doubt on
the future of the dollar and especially the euro.
China’s spectacular economic rise has led to speculation that the renminbi
(RMB) could displace both the dollar and euro at some point. China already
accounts for 10% of global GDP, 9% of world trade and about 25% of global
growth. Is it inevitable that this economic clout will result in increased
financial muscle? Instead of complaints about an undervalued RMB could we
hear complaints about the dominance of the renminbi in the future?
Some argue that the RMB could displace the dollar and euro within a
decade. Others suggest that this might take decades if at all. What unites
experts is the many changes, political as well as economic, that China
would have to make to develop the RMB as a major reserve currency. China’s
financial system is still under tight government control – one reason the
EU refuses to grant China market economy status (MES). The RMB is not
freely convertible and Chinese capital markets, despite their huge dollar
holdings, lack the depth to provide the liquidity critical to make a
currency attractive to hold and trade.
There are signs, however, that Beijing is ready to consider the
internationalisation of the RMB as it would result in considerable
prestige for China. Hong Kong is already being used as a base for the
experiment. The internationalisation of the RMB would help China exit from
the decades-old and controversial growth strategy based on keeping the
currency undervalued and the economy closed to foreign capital. But such a
path would have an impact on the domestic reform agenda far beyond the
financial field.
This timely event with a panel of leading experts will discuss the
implications of the internationalisation of the RMB.
To attend please send a confirmation e mail to info@eu-asiacentre.eu
EU Asia Centre
Madariaga Foundation
Belgium-Hong Kong Society
