Financial Services

A Delicate Stage

October 16, 2015


October 16, 2015

David Line


David was a managing editor for The Economist Group's thought leadership division in Asia. He has been writing about Asian economics, politics and finance for over 14 years. He has led numerous major research projects in the region, focusing on financial services, including most recently a series of papers on free-trade agreements in the region, several studies on the internationalisation of the renminbi, and the landmark Bank of America Merrill Lynch CFO Outlook Asia series. Among other things he is the author of a major study of middle-market companies in Japan and a chapter on the long-term future of the financial services industry in a 2015 Nikkei book charting global megatrends to 2050.

David was formerly Associate Director in Tokyo of The Economist Corporate Network, a membership-based advisory service for senior executives, and a reporter for the EIU's breaking news service, ViewsWire. He holds Masters degrees in Global Finance from NYU Stern School of Business/Hong Kong University of Science and Technology, in Japanese Studies from the School of Oriental and African Studies (University of London), and in Modern History from Oxford University.

Though the RMB is now used across the world, close control of its usage means it is not yet a global investment currency. It will soon become one.

China’s currency, the renminbi (RMB), is already internationalised: it ranks fourth globally by value of payments, behind only the US dollar, the euro and the British pound. The size of China’s economy and its dominant position in international trade mean that its use in transactions is already commonplace. Yet it is still not comparable to the four major denominations (including the Japanese yen) as an investment currency—i.e. one that is freely usable and enjoys the full confidence of international investors and the companies that service them. Without their support, the RMB cannot reach full maturity.

Until recently it seemed inevitable that China would take the steps necessary to win their confidence and that the RMB would soon join this elite band of global investment currencies. Yet the events of the summer of 2015, during which China’s authorities sought unsuccessfully to prop up a collapsing stock market and also suddenly devalued the RMB’s exchange rate anchor (ostensibly to take market forces more into account), raised questions about the country’s commitment to liberalising its capital markets. Doubts were reinforced by successive data points that suggested its economy was slowing far more rapidly than expected.

Looking beyond recent short-term volatility, the research asks about perceived demand for international usage of the RMB, what reforms are most urgently required, and what steps global financial services companies must take to prepare for a world in which the RMB vies with the US dollar.

The EIU also conducted in-depth interviews with a range of market participants and experts for this report, globally and in China, including with senior officials from the People’s Bank of China (PBOC), China’s central bank.

Key Findings

  • A market driven process with Chinese characteristics
  • Despite recent events, the RMB's global status looks assured
  • Regulatory and legal reform will be needed for full RMB maturity
  • To succeed, financial services companies need to drive the process

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