Mansoor Mohi-uddin has written an important piece in FT on the continued decline in offshore Renminbi deposits.
The persistent decline in offshore deposits — down by nearly a third to $180bn over the past year — thus shows confidence in the currency remains fragile….
…. shrinking offshore renminbi holdings — having closely tracked the decline in companies’ foreign borrowing over the past 12 months — indicate how capital continues to flow out of China’s economy despite the current calm in the exchange rate….
…This year’s declines in renminbi deposits held abroad show retail investors continue to shun the currency….
…Exporters appear unwilling to convert foreign earnings into renminbi deposits outside the mainland, reflecting concern the exchange rate will depreciate again in future….
….this year’s simultaneous declines in both foreign banks’ claims on onshore banks and in the amount of renminbi held offshore show confidence is low in the currency’s future prospects….
… The renminbi’s outsize falls over the past year — and the decline in the PBoC’s reserves from a peak of $4tn in 2014 to $3.2tn now — have been spurred by just one US rate rise. The fear that a series of Fed rate hikes in future will lead to greater capital outflows underpins the ongoing contraction in offshore renminbi deposits…. [Link]
The internationalisation of the Chinese currency is wholly incompatible with the renewed centralisation of power and concentration of economic decision-making authority with the President and his coterie. Nor does it go along with the heavy handed and interventionist approach to managing declines in the stock market and centrally directed flow of credit to public-sector investments this year. China is not only not progressing towards being a market economy but it is regressing.
Not too many international analysts and institutions are prepared to call it as they see it but they couch it in diplomatic terms such as ‘partial rebalancing’, ‘incomplete rebalancing’ and ‘rebalancing is work in progress’, etc. That is hogwash.
The compulsions and the pressure are evident in Mansoor Mohi-uddin’s last paragraph which pays statutory respect to the future international acceptability of the Chinese currency.
It is worth recalling what John Williams, the President of the Federal Reserve Bank of San Francisco said about ten months ago:
As long as they have the threat and reasonable expectation that in a moment of panic or crisis that they would clamp down on the movement of capital so it doesn’t disrupt their economy, there is no way that anyone would view the RMB as a reserve currency,” San Francisco Fed President John Williams told reporters on Thursday. [Link]
He might just as well have said the following:
As long as they have the threat and reasonable expectation that in a moment of panic or crisis that they would clamp down on the movement of capital so it doesn’t disrupt their economy, there is no way that RMB would become an international currency.