“Renminbi Internationalisation: stuck in mid-river – for now”, Miguel Otero-Iglesias (Elcano, Spain)

This paper looks at the internationalisation of the renminbi in May 2018, why it has stagnated since 2015 and what its possible future course might be.

A Chinese proverb suggests that one should always be cautious and cross a river by testing the stepping-stones. It can be said that the Chinese authorities progressed fairly quickly in internationalising the renminbi between 2010 and 2015 remaining in fairly shallow waters close to the shore, but once they ventured into deeper and choppier waters (i.e. the stock market turbulences of 2015) they realised their foreign exchange reserves were swiftly haemorrhaging and they decided to go back to a more active intervention in foreign exchange markets and to tighter capital controls.

This slowed down the internationalisation process. The question now is whether the Chinese authorities will give up and withdraw or forge ahead. If the latter, conventional wisdom would suggest they follow a liberal course of action. But perhaps there is an illiberal option more suited to China’s state-led capitalism: in this alternative track the Belt and Road Initiative (BRI) can have the potential to provide the necessary stable footing to complete the endeavour the Chinese way. But it would be advisable not to wait with bated breath.

You can read the full paper here.