• Financial services firms expect full RMB convertibility in around five years; most Chinese firms see it overtaking the US dollar
• Regulatory, legal reform needed—and less government intervention in markets
• Central bank underscores need for control but says market forces will drive process

Despite heightened worries in recent weeks about the stability of China’s economy and the process of reform, around two-thirds (63%) of senior executives from financial services companies in China, and more than three-quarters of those offshore (78%) think that the renminbi (RMB) will become fully convertible and tradable without restrictions in around five years’ time. Majorities of both groups believe it will take only slightly longer (7-10 years) for the RMB to become a global investment currency. 

Moreover, 60% of China respondents believe the RMB will surpass the US dollar as the world’s most commonly used currency within the next decade and 94% of say that this will happen eventually. Among global respondents, one in five think the dollar’s pre-eminence will be challenged within 10 years and 45% think this will happen eventually.

These are among the key findings of A delicate stage: The future of the renminbi as a global investment currency, a new report published today by The Economist Intelligence Unit (EIU), sponsored by UK Trade & Investment. The report is based on a survey of 202 senior executives from major financial services companies, 102 headquartered in mainland China and 100 outside it. The survey was conducted in August 2015, as confidence in China’s economic stability was hit by a massive stock market selloff and the authorities’ steps to counter it, as well as the sudden devaluation of the RMB’s reference rate.

Restrictive regulations are the most commonly cited problem in handling the currency by both on- and offshore financial services companies. A lack of liquidity and offshore risk-management products rank second and third. Doubtless influenced by the events of the summer, financial institutions in China put “less government intervention in onshore equity markets” at the top of their list of urgently required policy reforms, while for global respondents it is in second place, behind liberalisation of the legal services market and judicial reform. 

In an exclusive interview with the EIU for the project, senior officials from the People’s Bank of China (PBOC, China’s central bank) underscore the need for control as markets open and the RMB becomes an investment currency. “We remain committed to liberalising [China’s markets], but might still need some control,” says Yao Yudong, director general of the PBOC’s Research Institute of Finance and Banking. “We don’t really have a framework [for the internationalisation of the RMB]. It’s really driven by market forces... We are shifting from RMB use in trade settlement toward other assets, and the RMB is gradually being regarded as a reserve currency, which depends more on things like local interest rates and whether we can give better returns for investors.”

To download the report click here.

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Notes to editors

About the survey
In August 2015 The Economist Intelligence Unit surveyed 202 senior executives from financial services companies, of which 48% were C-level executives and 52% heads of department or senior managers. Of these, 102 were from institutions headquartered in mainland China and 100 from companies headquartered in international/ offshore financial centres (including the US and UK, Singapore, Hong Kong, Taiwan, Canada, Australia and India). 

Companies surveyed in China had assets of at least RMB50bn (US$7.8bn), while those in the rest of the world had assets over US$50bn. All companies surveyed had some involvement in international RMB products and services, with approximately equal proportions of banks, securities firms, asset managers and asset owners represented. Respondents worked in a range of functions, including portfolio management, risk, compliance, sales and marketing, and middle/back offices. 

About The Economist Intelligence Unit
The Economist Intelligence Unit is the world leader in global business intelligence. It is the business-to-business arm of The Economist Group, which publishes The Economist newspaper. The Economist Intelligence Unit helps executives make better decisions by providing timely, reliable and impartial analysis on worldwide market trends and business strategies. More information can be found at www.eiu.com or www.twitter.com/theeiu.