China has won podiums for every economic record. But, it’s relegated to the bottom of classifications for the diffusion of its currency, the renminbi. If numbers celebrate success, they’re equally pitiless when they confirm its marginal status. China is the biggest exporter and the second largest importer of goods and services in the world, and yet transactions in renminbi cover only 1.6% of the total. China’s currency is only the 7th most commonly used, not only behind the dollar and euro, but also the pound, yen, and Canadian and Australian dollars. The sterility of the statistic—and sometimes the trumpets of propaganda—reveals that in January 2013, the analogous percentage was 0.6%, and its position was 13th. The conspicuous improvements cannot hide the most probative analytical data: the renminbi is still at the margins of the international financial system. An accounting irony verifies this: China holds almost USD$4 trillion in foreign exchange reserves, two thirds of which are in US currency. Beijing buys dollars and Washington smiles because it doesn’t have to grant high interest rates. To finance itself, it only needs to print bonds and currency wisely; someone, especially in the East, will buy them.
China knows well that this privilege derives from many factors. It has attacked some of them, from politics to the economy, and strategy to soft power. In any case, it wasn’t able to spread the security that a strong currency provides. According to a keen study by the US-China Economic and Security Review Commission—created by the US Congress to study the national security implications of economic relations with China—China’s attempts to internationalize the renminbi have been pretty modest. These attempts have been applied in three categories. They involves offshore accounts and securities deposits, the application of commercial transactions for international payments, and swap lines between the People’s Bank of China and other central banks. Among the centers outside of Mainland China, not surprisingly Hong Kong remains the preferred destination. Deposits have multiplied, and in 2012 the ex-British colony’s banks managed 80% of the renminbi exchanges with the rest of the world. The rest was transacted in other international hubs like Singapore, London, Luxembourg, and Taipei. The concentration of securities denominated in renminbi is even stronger in Hong Kong, the so-called “dim sum bonds.” Issued by Chinese companies, they have become their most important source of financing. In fact, international investors prefer the rule of law, the bonds being guaranteed by Hong Kong’s legislation. The second instrument—the use of renminbi for international exchanges—has been accepted in the 10 ASEAN countries in addition to Hong Kong and Macao. It has been extended to all the Chinese provinces, but the commitment, evidenced by the above reported sums, is even scarcer. Swap agreements were more popular, exchanges aimed at reducing financial risks. China has signed 25 of them. Emerging countries were the first partners, but two new agreements with more political and economic value were signed in 2013 with the Bank of England and the ECB in Frankfurt.
Therefore, progress was made, even if it proves insufficient and disproportionate considering China’s weight and still uncertain prospects. China has transferred the solution to an internal problem overseas. The biggest obstacle to internationalizing China’s currency is in Beijing and regards the liberalization of its capital markets. The three exhausted solutions need the confidence of international investors that only the acceptance of market rules can guarantee. Instead, Beijing still doesn’t feel ready to venture into a competition whose variables it can’t control. Liberalizing trade means that “others” beyond Chinese control could determine the renminbi’s value. Respecting the movement of capital is still unacceptable for the very reason that it’s unpredictable, and it would undermine conservative bureaucrats’’ power. For those that are interested in determining their own fates, there’s a whole way to win in finance. Due to necessity or choice, China is holding its course. And so it has become an industrial giant still anchored to its factories because of the fear of venturing into the world of finance that it can’t control. In the end, internationalization of the renminbi lacks the trigger, accelerator, and the regular and growing velocity of diesel.