The path to internationalising the renminbi

Author: Ashley Lee | Published: 23 Sep 2014

Foreign demand for the renminbi has soared this year. Its transition to a global currency seems inevitable. But internationalising the market requires new clearing and settlement infrastructure - and presents significant risks

The next reserve currency. A competitor to the US dollar. The biggest opportunity in global finance. Since China Development Bank first sold offshore renminbi-denominated sovereign bonds in 2007, investors have anticipated the full internationalisation of the currency.

Seven years later, that still hasn't happened. Although recent developments may have blurred the lines between onshore and offshore renminbi. "We expect a de facto – if not de jure – convergence between CNH and CNY," says Vijay Chander, executive director of fixed income at the Asia Securities Industry & Financial Markets Association (Asifma). As investors use both markets, he says they'll look to the cheaper for both funding and investing, which will drive the convergence of interest and exchange rates across the two markets.