Source: Bloomberg, Haver Analytics, Benn Steil & Emma Smith

Despite talk of the “remorseless and unstoppable” globalization of the RMB several years ago, there is little reason to accumulate RMB today, write Benn Steil and Emma Smith for the Council on Foreign Relations.

The authors note three things in particular have led to the change:

  • With the dollar-value of the RMB declining by an increasing amount every year since 2014, the government has been steadily tightening restrictions on capital outflows, which is a huge disincentive for non-Chinese to hold RMB.
  • China’s share of global exports is in decline, and that is happening in a shrinking global market.
  • Capital flows in the form of equity and bond purchases, foreign direct investment, and lending fell by more than two-thirds between 2007 and 2015, while merchandise trade declined by 10% between 2011 and 2015.