China’s financial integration with the rest of the world lags far behind its trade integration, owing to long-standing capital controls and underdeveloped capital markets. Since 2009 Chinese policymakers have actively promoted the internationalization of the renminbi (RMB) and its use abroad, leading to gradual but greater capital account liberalization.
This paper offers an overview of recent developments in the process of RMB internationalization. Offshore RMB markets are playing an important role in stimulating China’s financial integration and promoting the use of the RMB outside the country.
In Europe, as elsewhere, offshore RMB centers are flourishing in response to increased demand for RMB-denominated financial services and strong political support from both sides. These developments have implications for currency trading, trade financing and banking activity in general, and strengthen the financial links between Europe and China.
Capital account opening in China is expected to remain gradual. Recent episodes of instability on the Chinese financial and exchange rate markets have shown that the road to liberalization may be bumpy and international spillovers large.
