RMB-nisation Needs Offshore Market

Abstract

Some argue that the removal of capital controls and the opening up of the domestic capital market would be sufficient to internationalise the renminbi (RMB). The development of an offshore RMB market would play no role in the process. They cite the experience of some countries which opened their capital accounts and domestic capital market to foreign participation without developing an offshore currency market at all. This is a misunderstanding. There is little evidence to support the case of currency internationalisation without an offshore market. The experience that these observers cite refers to the countries’ financial liberalisation process, but not currency internationalisation.