EYE ON CHINA: The rising RMB

In the shops, banks and stalls around Mong Kok it is clear from the traders I spoke to that the use of the Chinese Renmibi in Hong Kong is on the increase. One year ago the city introduced a new trade settlement that allowed Hong Kong business’ to use the RMB as a trading currency which has affected both small traders and large financial institutions alike. Over the last ten years the RMB has been slowly gaining influence in the markets that surround mainland China and no more so than in Hong Kong, a Chinese city that retained its own currency as part of the one country two policies system.

With the rapid development of China's foreign trade, the RMB is increasing its flow out of China's mainland, which leads to overseas circulation and exchange of the currency in neighboring areas. Although the percentage of international trade that uses the RMB is still very small, many analysts believe it is only a matter of time before the RMB becomes a major international trading currency in the region. Dr. Billy Mak, Associate Professor in Finance at Hong Kong Baptist University believes this will happen in three phases,

The first phase the RMB should be used as a pricing currency and a settlement currency for the international trade because right now China is one of the biggest partner in international trade so its quite natural to make the RMB as a key currency for the pricing and the settlement for the trading.

The second step will be using the RMB as an investment vehicle so you can invest in RMB and get the interest from the RMB and also you can enjoy the appreciating of the RMB as well just like you invest your money into the Euro or US dollar in the Swiss fund etc.

Then the third step will be the RMB as an international foreign currency reserve just like the US dollar and the other key currencies so the foreign countries may need to consider to keep a portion of foreign currency reserve in terms of RMB. Then that gives the RMB to be internationalised.

Right now we are in the phase of the earlier stage, we just started using the RMB as a trade settlement currency last year.

The RMB still has a long way to go to become an international currency that can be freely exchanged but it is clear in Hong Kong the benefits of using the RMB for trading are substantial.

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About D J Clark

D J Clark has worked worldwide as a photojournalist for more than 20 years. He specialises in working with international development NGOs to highlight social, political and environmental issues through long term photography projects. D J Clark researches and writes about photography as a vehicle for social change, the subject that drives both his photographic and academic work. More recently his work has concentrated on Multi Media news production.