China’s Economic Rebalancing Boosts Renminbi’s Internationalization

The widespread use of the Chinese cur- rency internationally has become a trend， with Chinas economic rebalancing facilitating the process， a senior official of the International Monetary Fund （IMF） said.

“Given Chinas importance in the global economy， there is little question that the international use of the renminbi will rise over time，” Zhang Tao， Deputy Managing Director of the IMF， said. “In the short term， fl uctuations in trade， capital fl ows and exchange rates may affect the trend.”

Zhang hailed the inclusion of the RMB into the IMFs special drawing rights （SDR） basket as a milestone for the IMF and the global economy.

The Chinese yuans share of currency reserves increased to 1.89 percent in the fourth quarter of 2018， the highest since the IMF began releasing yuan data in late 2016， according to the IMFs data on currency composition of offi cial foreign exchange reserves.

What is important， Zhang said， is that Chinese authorities continue to pursue a policy framework that rebalances the economy in a more sustainable direction—from investment and exports to domestic demand， particularly consumption.

“If rebalancing is successful， renminbi internationalization will take care of itself，”he said.

In 2018， China announced a series of policies to further open up its fi nancial sec- tor， with reforms involving foreign banks， the insurance sector and the securities market.

Zhang said the opening up of the Chinese financial sector will make Chinas financial markets more modern and effi cient， which in turn will help make better use of Chinas savings.

“For foreign investors， Chinas fi nancial markets offer an opportunity to benefit from Chinas ongoing strong growth， as well as to invest in a large and diversified economy，” he said.

Zhangs remarks came against the backdrop of global index provider MSCI announcing in February that it plans to increase the weight of China A-shares， or Chinese mainland shares denominated in yuan， on the MSCI indices.

The MSCI said in a statement on February 28 that it will quadruple the weighting of China A-shares in its global benchmarks by increasing the inclusion factor from the current 5 percent to 20 percent.

The progress in Chinas financial sector integration has something to do with its bond market. From April， Chinas yuandenominated bonds have been added to the Bloomberg Barclays Global Aggregate Index.

Citing the IMFs new book released in March， The Future of Chinas Bond Market， Zhang said Chinas bond market has bright potential for development.

“Market sentiment improved recently，”he said. “U.S. and Chinese equity markets are both up since January.”

The U.S. Federal Reserve adopted a more patient and fl exible policy by keeping the federal fund rate unchanged after concluding its latest policy meeting in March. Zhang said this shift in monetary policy supports the positive risk sentiment in equities as well as global markets， including broad emerging market assets.

“Along with the boost in asset prices， portfolio inflows to emerging market economies have resumed meaningfully in 2019，” he said， adding that many emerging market economies and corporates have taken advantage of the more favorable environment and easier financial conditions to issue new debt. They include first-time sovereign issuers with weak debt-management capacity.

However， Zhang warned that some emerging economies with higher vulnerabilities are likely to be more prone to funding problems during risk-off episodes and sudden changes in global sentiment.

On the IMFs quotas and governance reform， Zhang said the international lender is adequately resourced， with a total lending capacity of about $1 trillion.

“There is broad support among our members on ensuring that the IMF remains strong and well-resourced， so that it can play its role as a global fi nancial backstop in the event of downturn，” he said.

Quotas are the principal source of financial resources for the IMF to lend to its members. Upon joining the IMF， each member contributes a certain amount of money， known as a quota subscription. The volume of the quota varies depending on the members relative size in the world economy.

“We remain committed to the realignment of quota shares to more accurately reflect members representation，” Zhang said.