HSBC: Renminbi as a reserve currency

[link to m.centralbanking.com]


China’s renminbi is gaining traction as a global currency, which will pave the way for a multiple global reserve currency system. Discussed here by John Zhu, economist, Greater China, HSBC
The US dollar’s dominance in the global financial system remains. But, looked at in another way, the dollar is also unusually dominant. According to the International Monetary Fund (IMF), the dollar currently accounts for 61% of total allocated foreign currency reserves compared with 25% for the euro. At its height, prior to the First World War, sterling was only 48% of global reserves.1 As the renminbi (RMB) becomes more global, the make-up of foreign exchange reserves will change over time. There is plenty of room for the RMB to grow as an international currency – after all, China accounts for around 12% of both global gross domestic product (GDP) and trade, yet the RMB is only used for around 2% of global payments.
There is still a long way to go, but the direction is surely heading towards greater trade flows with China. Already the world’s largest trading country, nearly 20% of China’s foreign trade is now settled in RMB – up from just 3% in 2010. However, this is still low compared with around 50–60% of the eurozone’s external trade settled in euro, and 30–40% in yen for Japanese trade. The Hong Kong Monetary Authority (HKMA) expects RMB settlements to reach 30% by the end of 2015.

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