Expert outlines key steps to boost RMB's global standing

Momentum is building for China to elevate the renminbi's global standing in the years ahead, with greater capital account convertibility, a more coherent financial opening framework and expanded private outbound investment set to be among the core of the next reform push, said a veteran economist.

"Renminbi internationalization is a natural process," said Guan Tao, global chief economist at BOCI China, in an exclusive interview with China Daily. "It is not about internationalization for its own sake, but about responding to needs from the real economy."

According to Guan, the course of renminbi internationalization — first formally articulated as a policy objective in 2014 — has shifted from being mainly driven by offshore markets to being increasingly driven onshore as China opened its stock and bond markets wider to foreign investors.

Opening of the capital account, which tracks cross-border capital movements, and currency internationalization, have thus become "two sides of the same coin", Guan said, making raising the renminbi's capital account convertibility a crucial task for the 15th Five-Year Plan period (2026-30).

He suggested lifting the combined share of items classified as "basically convertible" or "convertible" — categories where transactions face relatively few restrictions — to more than 80 percent of all capital account transactions by 2030, up from about 60 percent at present.

This would involve streamlining and consolidating the various cross-border securities investment channels to form a more unified opening framework, strengthening the use of taxation tools to manage cross-border capital flows, and encouraging more overseas entities to issue bonds and stocks onshore, Guan said.

Adopted at the fourth plenary session of the 20th Central Committee of the Communist Party of China, the recommendations for formulating the 15th Five-Year Plan have called for advancing the currency's internationalization while pursuing greater openness of the capital account.

This marks a fine-tuning of the "steadily and prudently" phrasing in regard to renminbi internationalization set at last year's third plenary session, which analysts said signaled a more assertive and proactive stance.

The People's Bank of China, the country's central bank, also said it will integrate investment channels as appropriate to attract more overseas investments while encouraging more overseas institutions to issue panda bonds, which are renminbi-denominated.

Guan also stressed further facilitating outbound investment by private enterprises, helping China, as a net external creditor with more overseas assets than liabilities, earn steadier and higher income from overseas assets.

Still, cost-benefit trade-offs remain, said Guan, who served at the State Administration of Foreign Exchange for years. Using the renminbi for cross-border trade and investment helps hedge exchange rate risks and strengthens China's financial sector, but it also makes exchange rate operations and cross-border flow oversight more complex as offshore activity is harder to monitor.

Howard Davies, chair of the International Advisory Council of the China Securities Regulatory Commission, said that some degree of risk-taking and letting the renminbi become more convertible are integral if China aims to build a truly international currency.

Future opening steps are likely to follow a prudent and gradual approach, Guan said, reflecting China's long-standing principle of advancing reforms in a step-by-step manner to ensure both safety and progress — especially as capital account liberalization could magnify asset price swings and market distortions if domestic reforms lag behind.

This, he noted, underscores the need to continue advancing key domestic reforms — from strengthening market-based exchange rate formation and developing a more law-based, internationalized capital market to improving property rights protection so that long-term capital is more inclined to stay.

Guan added that the renminbi's roles as a financing, investment and reserve currency have a large scope to strengthen and match its economic influence, a process that offers other economies and global investors an alternative, helping reduce overreliance on one single currency and bolster global financial resilience when the dollar-dominated system is showing rising fragility.