Renminbi internationalisation poses potentially fatal risks
Hong Kong has emerged as the preeminent offshore market for renminbi with the market swelling from 86.8 billion yuan ($13.5 billion) in 2010 to 550 billion yuan by May this year. But this phenomenal growth has caused new market distortions and raised concerns among regulators about the build-up of potentially fatal new risks.
Freedom from many of the political and economic controls of mainland China has enabled Hong Kong to emerge as the preeminent offshore renminbi trading centre. The Chinese currency can be freely traded, converted and delivered there, while China’s trading partners are free to settle their payables and receivables in renminbi and hold the currency in its banks. Meanwhile, renminbi financial products are freely traded and new ones developed.
But as the growth of the CNH (the unofficial term for
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