Is Brexit good or bad for the global prospects of the Chinese currency? Beijing-controlled media have griped that last month's referendum hobbles London's efforts to help internationalise the yuan. But there are pluses. For one thing, the sterling selloff has made the democratic, free-floating pound look a lot less safe next to the steadier renminbi.
China is irked with the UK for breaking up with Europe soon after its finance ministry graced London with an auction of yuan-denominated bonds. The disruption also came in the midst of negotiations over a stock-trading link between the Shanghai and London exchanges.
Then again, Chinese officials can now feel smug. The People's Bank of China came in for criticism last August when it pushed the yuan's value down three per cent in a few days. It is also regularly lambasted for interventions through state-owned banks. The renminbi has lost eight per cent against the dollar in the past two years. But British voters last month knocked as much as 13 per cent off the pound in a few days. It has fallen nearly a third against the greenback since July 2014.
Chinese 10-year bonds yield nearly three per cent, while a UK gilt of the same maturity pays less than one per cent, a much lower risk premium. Yet the yuan is up roughly 10 per cent against the pound since the June 23 Brexit vote. It's not so obvious which currency should be the safe haven.
Given its trading stature, the contest is China's to lose. The yuan won a symbolic victory last year when the International Monetary Fund made space in its reserve basket largely by taking three percentage points off the pound's share, ranking the renminbi third behind the dollar and the euro. More concrete advances have followed, too: foreign holdings of onshore Chinese bonds rose by a record 41 billion yuan ($6.1 billion) in June.
Investors do worry about China's commitment to its liberalisation plan, which currently culminates in "full convertibility" by 2020. Beijing horrified outsiders with its interventions during last year's stock crash. If a debt-driven financial crunch takes hold, they justifiably fear that China will reintroduce capital controls. It's about consistency rather than political systems. If Zhongnanhai proves a better steward of its currency than Downing Street, cash will follow.
China is irked with the UK for breaking up with Europe soon after its finance ministry graced London with an auction of yuan-denominated bonds. The disruption also came in the midst of negotiations over a stock-trading link between the Shanghai and London exchanges.
Then again, Chinese officials can now feel smug. The People's Bank of China came in for criticism last August when it pushed the yuan's value down three per cent in a few days. It is also regularly lambasted for interventions through state-owned banks. The renminbi has lost eight per cent against the dollar in the past two years. But British voters last month knocked as much as 13 per cent off the pound in a few days. It has fallen nearly a third against the greenback since July 2014.
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Given its trading stature, the contest is China's to lose. The yuan won a symbolic victory last year when the International Monetary Fund made space in its reserve basket largely by taking three percentage points off the pound's share, ranking the renminbi third behind the dollar and the euro. More concrete advances have followed, too: foreign holdings of onshore Chinese bonds rose by a record 41 billion yuan ($6.1 billion) in June.
Investors do worry about China's commitment to its liberalisation plan, which currently culminates in "full convertibility" by 2020. Beijing horrified outsiders with its interventions during last year's stock crash. If a debt-driven financial crunch takes hold, they justifiably fear that China will reintroduce capital controls. It's about consistency rather than political systems. If Zhongnanhai proves a better steward of its currency than Downing Street, cash will follow.