subject: The Rmb Market Still Needs To Be Developed [print this page] According to one media in the United Kingdom, the market dominated by the RBM is still an underdeveloped market. If the RMB wants to act as the reserve currency, there is still a long way to go.
To act as a reserve currency, the Yuan should be fully convertible on the need, both in the capital account and current account. But this would mean that China may be at the mercy of global capital, and that is what China has been in the prevention of (China's huge foreign exchange reserves serve as a clear proof of this). For a long time, the Chinese market is alert to the possible negative effects that the tendency may have on its economy. To prevent the potential risks, the Beijing government has ever tried to be conservative.
Of course, when the RMB does not have the full convertibility, the foreign exchange market still must meet the needs of the enterprises that import Chinese products. However, the demand for such services is likely to be low. This is because as long as people continue to expect the Yuan will appreciate importers outside of China will be reluctant to use the RMB for settlement of import transactions. Many people are just standing by to wait for the better chance.
The reality is that as long as foreign holders are still severely restricted in the aspect of the disposal of RMB, the RMB market will remain as underdeveloped. To develop the market, more effective measures should be taken continually for a log time. The Osborne's decision to change this situation basically has no influence. It seems that there is still a long way to go before the present situation changed.
As to the investors, capital controls have built a huge obstacle. If the companies plan to issue RMB bonds in offshore markets, they have to obtain approval from China State Administration of Foreign Exchange, which may be extremely difficult, so they are primarily issued by the Hong Kong subsidiary. However, some risks also linger under this situation. In this case, in the event of default, it is difficult for international investors to claim compensation.
