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Over the past 18 months, the internationalization of the renminbi, China’s currency, has entered a new phase. Lower interest rates in the onshore renminbi market, combined with slower economic growth in mainland China and expectations of currency depreciation in the medium term, have caused the expansion of the offshore renminbi bond market to slow dramatically (in some quarterly periods, bond issuance has even contracted). This is despite the progressively greater opening of the Chinese capital account, increased interconnectedness between the onshore and offshore markets, and the addition of the renminbi to the IMF’s Special Drawing Right (SDR) basket.

The Chinese government’s outward investment agenda is feeding into currency reform prospects. In late 2013 the government announced the so-called ‘Belt and Road’ initiative, commonly known in the West as ‘One Belt, One Road’. This initiative aims to promote infrastructure development in 60 countries in Asia and surrounding regions. However, it also has implications for the internationalization of the renminbi.

Over the past several months, researchers at Chatham House and the Chinese Academy of Social Sciences (CASS) have studied the feasibility of using this initiative as a means to expand the use of the renminbi, both in the real economies of Belt and Road host countries and in the London offshore financial market. 

The first paper, Part 1: The View from Beijing, looks at a number of factors that are likely to emerge as new drivers of renminbi internationalization in the medium term and investigates the investment demand arising from Belt and Road projects and the potential for further cooperation between China and the UK, in particular the opportunities around London’s position as an offshore renminbi market and global financial centre.

The second paper, Part 2: The View from London, examines the dynamics of renminbi internationalization, and whether London could become a key centre for renminbi-denominated project finance.

The third paper, Part 3: Framework for Policy Discussion, identifies a series of 16 policy recommendations detailing how the Chinese and British governments, in collaboration with private banks and investors based in the City of London and worldwide, can effectively support the development of Belt and Road financing in such a way that it expands the use of the renminbi in both the financial and real economies.