China’s renminbi goes slowly global

Usually accompanied by shifts in power Great changes in the international reserve currency. For this is to say that China is taking steps to expand the use of renminbi among international investors. The dominance of the global economy, and believes Beijing, goes hand in with the dominance of the international monetary system.

Measures aimed at the internationalization of RMB is not something new. And made Hong Kong bank accounts abroad RMB for over six years, and exchange agreements currencies with foreign central banks that have been developed since 2000. Has accelerated, but they have in recent months. The eased restrictions on foreign remittances, and the program allows companies to settle cross-border transactions in RMB expanded. The decision was issued last week to open the domestic bond markets of particular importance. Until then, there were few investment opportunities to the owners of the International renminbi.

This is, however, only small steps. Whether China will be able to stomach the rest of the trip for the development of its currency reserve currency is far from clear.

The RMB reserve must be capable of fully convertible on the capital account, as well as the current account. But this implies the opening up of China to the whims of global capital - specifically what it was to protect themselves against (as the huge reserves of foreign exchange experience). Freer capital flows may also prove destabilizing for the local banks, creating bubbles of liquidity in the good times and choked supplies of credit conditions deteriorate. Will no longer banking sector to be an effective tool for macroeconomic policy, as it was during the crisis, with fun governmental lending caused. It would be the source, and not to treat, and increase economic fluctuations.

Even less acceptable for the government is the possibility of loss of control over the currency's peg to the dollar. Maintaining the peg to the dollar in the face of large flows of capital very difficult. And maybe, if overseas demand for the renminbi to pay as much value, China's growth model led by exports - which depends on the currency undervalued - has become intolerable.

China will become the largest economy in the world in the coming decades. It is natural that in the end of the RMB reserve currency situation. China should not push this process forward prematurely, so as not to destabilize the economy. But sooner and start internal reforms that would be ready for such a switch, they'll find it easier to the new international role.