The Quiet Rise of the Renminbi
The renminbi’s (RMB) role in the global financial system has become more prominent in recent years. Trading at relatively firm levels against both the US dollar and the euro, the currency reflects steady trade flows, expanding international usage, and broader adoption as a settlement currency. While discussions around the RMB frequently focus on trade policy and bilateral tensions, its gradual integration into international commerce represents a notable shift in global trade dynamics.
Despite economic uncertainty and volatility in developed markets, the offshore RMB has shown relative stability. China’s use of the currency in cross-border trade settlement has expanded, with companies across parts of Asia, the Middle East, Latin America, and Africa increasingly settling trade directly in RMB. This trend reflects China’s established position in global supply chains and a gradual diversification within the international monetary system. This shift is visible in commodity and industrial trade, where counterparties frequently look for alternatives to the traditional dominance of the US dollar, positioning the RMB as an increasingly utilised trade finance currency supported by emerging market networks.
Interestingly, this international expansion has progressed without the level of currency appreciation that traditional economic models might suggest. Despite consistent trade surpluses and a leading position in manufacturing exports, factors that typically put upward pressure on a currency, the People’s Bank of China has maintained a policy of managed stability. This approach seeks to balance gradual internationalisation with domestic economic considerations and export competitiveness. Rather than pursuing rapid capital account liberalisation, policymakers have focused on steadily embedding the RMB into global financial networks. While capital controls continue to limit its role as a primary reserve asset, the currency is becoming a more permanent fixture of the global financial landscape.
From an investment perspective, there is reason to believe the renminbi may be undervalued relative to the scale of China’s manufacturing output and trade surplus. The combination of gradual internationalisation and a policy framework focused on stability suggests potential for steady performance over the longer term. For these reasons, exposure to the RMB is maintained within the Next Generation Bond Fund as part of a broader allocation to sovereign and quasi-sovereign bond opportunities.
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