![Will Shanghai successfully realize free exchange of RMB [CGTN]](https://i0.wp.com/usachinatrading.com/wp-content/uploads/2020/11/Will-Shanghai-successfully-realize-free-exchange-of-RMB-CGTN.jpg?resize=525%2C296&ssl=1)
As an international financial center, Shanghai is a pioneer of China’s financial reform and opening-up. With more businesses coming into the city, the call for a further advancement in the free exchange of the renminbi (RMB) is rising amid the 30th anniversary of the opening-up of Pudong.
China’s currency RMB is convertible for trade purposes under the current account, but it is not freely convertible under the capital account, which covers portfolio investment and borrowing. The country has introduced programs including the Qualified Foreign Institutional Investors (QFII), Qualified Domestic Institutional Investor (QDII), and Qualified Domestic Institutional Investor (RQFII) to allow for more convenient capital inflows and outflows. Some say the RMB’s status and exports and imports volume are not proportionate, and doing businesses would have additional costs because of the non-convertibility of the RMB. The financial hub Shanghai, especially, should do more in this respect.
‘It needs a process’
Officials and experts say it takes time and preparation for the country to achieve the full convertibility of the RMB. Zhou Xiaochuan, former governor of the People’s Bank of China (PBOC), and president of China Society for Finance and Banking, said the further internationalization of the RMB should weigh the pros and cons to increase the free use of the RMB, and minimize capital account controls to the greatest extent, which involves research, way of thinking, policy system changes and emergency preparedness. Further convertibility under capital account does not mean 100 percent liberalization, given that all countries have anti-money laundering and anti-terrorism requirements, and many financial transactions and forms of remittance are subject to restrictions, said Zhou at the 2020 Financial Street Forum in October.
The ultimate goal of the internationalization of the renminbi (RMB) is to achieve convertibility, but it needs a process. China has held on to the reform principle of “testing each step before taking it” to achieve success through trials instead of turning back after failure, Qu Qiang, assistant director of the International Monetary Institute at Renmin University of China, told CGTN.
“We can’t follow the old path that many developing countries have taken but failed. We can’t let go at once without restraint and management, especially when our market system and financial supervision system are not mature, which is irresponsible for China itself as well as the international capital market,” Qu said.
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