The Internationalization of the Renminbi : What is Happening and What We Can Expect

The renminbi (RMB) has become something of a buzzword that is mentioned in all discussions, despite the fact that the currency is not convertible. In fact, there are good reasons for its notoriety. First of all, it is the currency of an economy that within only a few years has become the biggest in the world after the United States. Second, China's soaring growth, enormous productivity gains and major accumulation of current-account surpluses (see Charts 1 and 2) - all key factors in determining a currency's equilibrium exchange rate - have not been accompanied by a rise in the RMB, so many people think that it is not aligned with the fundamentals. The misalignment, combined with the developed world's difficulties in the wake of the crisis, have led to growing calls for a speedy appreciation of the RMB