3 Mar 2012
- Last week’s leaked report by the People’s Bank of China on the future liberalisation of China’s capital account and the internationalisation of the renminbi managed the difficult job of suggesting both ambition and caution. It said little that the Bank has not been saying in public and private for some time.
- It was, however, intended as a marker in an internal debate ahead of the 2012 leadership change and reflected the fact that the People’s Bank of China is increasingly confident in speaking over the head of the rest of the Chinese system to Chinese business on the question of capital markets and currency strategy.
- The People’s Bank of China’s strategy is more ambitious than this report suggests, not necessarily in terms of moving quickly to full convertibility, but certainly in terms of ‘investability’: widening the scope for foreigners to settle trade in renminbi and to use it to invest in China.
- This strategy of using ‘offshore’ to apply targeted policy pressure ‘onshore’ reflects the People’s Bank of China’s concerns about weaknesses in the Chinese banking and financial system, especially the need for more diversity in China’s funding markets.
The views expressed in this note can be attributed to the named author(s) only.