Chinese currency exceptionalism: The curious internationalisation of the renminbi

The People's Republic of China (PRC) lacks the macroeconomic conditions to internationalise its currency, the renminbi (RMB). Despite tight controls on capital markets in China, the international use of the RMB has increased significantly with the RMB becoming the fifth most used currency in global trade and financial markets. We argue that the internationalisation of the RMB has followed an unusual process, differing from the more typical features depicted in the literature on currency internationalisation. The RMB has internationalised despite the reluctance of the Chinese government to liberalise the country's current and capital accounts and its financial market. We argue that the investment role of money—overlooked or downplayed in this literature—is the main driver of RMB internationalisation. The Chinese government has created specific investment channels for non‐Chinese investors that allow a controlled flow of capital to enter China's securities markets. The major players promoting the international use of the RMB are Western banks, the investment fund industry and financial services firms that have included Chinese securities in their indices. In the absence of structural conditions to expand the RMB's international use, we suggest that agents matter the most in this phase of limited RMB internationalisation.