Future of RMB internationalisation China has embarked on the formidable task of liberalising the capital account at a time when domestic growth is slowing, its financial system is still maturing, and US monetary policy is normalising. The process has therefore entailed careful calibration and periodic reassessment – crossing the river by feeling the stones. Since 2010, the offshore RMB market has experienced remarkable growth, driven by strong investor appetite and cross-border trade. In the near term, however, the trajectory of RMB internationalisation is likely to moderate, due to a confluence of factors. First, global trade, which is a key factor driving the overseas use of the RMB, has declined. •  Merchandise trade flows between China and its trading partners are expected to be modest in the next year or so, reflecting cyclical headwinds. Second, market expectations of China’s GDP growth affect expectations of the RMB’s appreciation or depreciation. •  As the Chinese authorities forge ahead with fostering a more market-based RMB exchange rate, greater two-way volatility can be expected, compared to what appears to have been a one-way trend appreciation in the past. •  This could have a bearing on investors’ expected returns on RMB deposits and financial assets, and therefore their demand for offshore RMB. Third, the liberalisation of China’s capital account is likely to proceed cautiously in the near term.
•  Policymakers will be more cautious in the short-term as they work to ensure that the market volatility and ensuing capital outflows in late 2015 and early 2016 do not have a lasting impact on market confidence. But I believe the Chinese authorities remain committed to liberalising the capital account and promoting the international use of its currency in the medium term. •  The latest 13th Five-Year Plan, announced in March this year, has made clear the aim to reduce foreign exchange restrictions for both corporates and households and encourage the use of the RMB in cross-border payments and international reserves. Progress in RMB internationalisation will ultimately depend on getting right the sequencing of domestic economic and financial reforms. A strong and stable domestic financial system is a prerequisite for further capital account liberalisation and currency internationalisation. China-Singapore financial connectivity: the journey so far Singapore’s financial linkages with China have grown strongly over the years, particularly since the appointment of ICBC as Singapore’s RMB clearing bank in February 2013. •  The offshore RMB market in Singapore has expanded, with a wide offering of RMB products, including deposits, bonds, derivatives, mutual funds, and trade financing. •  China and Singapore have set up cross-border RMB arrangements for Suzhou, Tianjin and Chongqing, enabling corporates in these areas to borrow from Singaporebased financial institutions as well as repatriate proceeds from bonds issued in Singapore. 2  BIS central bankers’ speeches  But China comes to Singapore not only to do business in Singapore.