China's Reminbi heading towards reserve status

China's Reminbi is moving towards becoming a reserve currency as China realise the advantages of challenging the world's most important currency the US$ Dollar. With in the next 5 to 10 years the growing stature of the Reminbi will see it become a credible alternative to supplement the US$ as a global reserve currency.

Today China has 3 Trillion dollars of trade which equates to 3 Trillion dollars of currency reserves which gives the reminbi a lot of potential. It seems the Chinese government is realising the power of the reminbi being a credible reserve currency on international trade and markets. With in the next 5 to 10 years we expect the reminbi to be accepted in the basket of currency's with in the SDR. 

For China's Reminbi to carry more global weight as a reserve currency then reforms need to be made such as capital control. With in the last 18 months China has started on the road of reforms, now 10% of reminbi deposits are in Hong Kong which totals over 600 Billion worth. The further development of the Reminbi is demonstrated by different  Reminbi financial products that are now avaiable such as Reminbi Bonds, Loans, Foreign exchange and Structured products which are now all available. BricPartner feels that there will be many more Reminbi financial products available soon. The Biggest hurdle to overcome for the Reminbi to be a reserve currency is Capital Flow and to allow the Reminbi to freely flow back into the mainland as currently its restricted. There are only 3 ways available either Reminbi exchange goes in the form of trade finance or in special QFI quotes or in special FDI arrangements all of which are limiting. With these 3 ways it does mean the Reminbi has an Offshore market but very much a one legged market. At the moment Hong Kong is the main location for trade in the Reminbi related business but in the future once all the reforms are in place we expects to see Currency trading Hubs such as London and Singapore becoming leading locations for Reminbi trading.

For the Reminbi to be a credible alternative to the US$ then it will have to be on the back of Liberalised capital reform which will not happen in a hurry.