Renminbi | The Goal Of Convertibility

The European Union is still debating the nature of its common currency, the position of non-eurozone EU members like the UK, and the future of stressed eurozone countries like Greece. But the situation in other parts of the world is quite different.

JUNE 2015 | VOL. 29 NO. 6

GFMag June 2015 Cover

Full convertibility for the Chinese renminbi is on the horizon for the near future. Indeed, some market watchers expect the Indian rupee to be the next emerging markets currency to assume global clout.

These developments are not just symbolic. They have a concrete relevance for both investors and corporate executives. The eventual admission of the Chinese currency to the basket making up the IMF’s special drawing rights—comprising US dollars, Japanese yen, British pounds and euros—will force many countries to allocate yuan renminbi to their reserves and will increase demand for the currency.

At the same time, in a sort of zero sum game, this increase in demand for yuan will dilute demand for traditional reserve currencies like US dollars, euro and yen—particularly in global trade. As this month’s cover story makes plain, the move to full convertibility will not be swift, but the trend seems clear. It reflects the growing importance of the Chinese economy: the relevance to global markets of trade to and from the country and the opening of the Chinese economy to the rest of the world. After years of double-digit growth in yuan-denominated trade, plus the development of offshore currency hubs and tax-free zones, we are entering a new phase of openness.

India’s currency, meanwhile, is moving in the same direction—albeit slowly. “A freely convertible [currency] must have sound, credible and time-consistent macroeconomic policy,” noted Shri Padmanabhan, executive director of the Reserve Bank of India, recently, in an effort to cool down any hope for a quick end to the country’s regulatory restrictions on the currency’s convertibility.

In this issue we also present our third annual listing of the most innovative firms in treasury and transaction services. These companies, large and small, are redefining the rules of the game in this market segment.

Andrea Fiano | Editor