As China continues to lower barriers to its capital account, offshore renminbi (RMB) trading markets have grown substantially, guided in their establishment and encouraged in their development by Chinese leaders. The People’s Bank of China appointed RMB clearing banks in London and Frankfurt in June. South Korea also agreed last Thursday to foster its offshore RMB market by introducing direct trading between the won and the RMB. The People’s Bank of China also announced days ago that it would set up RMB clearing banks in Paris and Luxembourg. The presence of offshore RMB markets has facilitated cross-border trade to some extent, and going forward will help to ensure that, by the time China liberalizes its capital account and exchange rates, its currency can flow worldwide without hindrances due to a lack of “financial plumbing.”
The offshore RMB market first emerged in 2004, in Hong Kong. Starting in 2009, China allowed the RMB to flow outside of the country for use in payment for goods and services or particular investment purposes. In July 2010, dim-sum bonds, or Chinese currency-denominated bonds, became issuable outside of China and Hong Kong. The offshore RMB is designated as CNH (as opposed to the domestic CNY) and has become increasingly traded. Since 2009, many countries have attempted to build up their offshore RMB centers.