philip lowe : some implications of the internationalisation of the renminbi opening remarks by mr philip lowe, deputy governor of the reserve bank of australia, to the centre for international finance and regulation conference on the internationalisation of the renminbi, sydney, 26 march 2014. * * * i would like to thank michelle wright for assistance in the preparation of these remarks. i would like to thank the centre for international finance and regulation ( cifr ) for the opportunity to open today ’ s conference on the internationalisation of the renminbi. this topic is an extremely important one and the reserve bank is a strong supporter of cifr ’ s work in this area. in my own view, the internationalisation of the renminbi ( rmb ) – and the changes that accompany it – could ultimately prove to be as transformative for global capital markets as was the earlier opening up of china ’ s borders for the global trading system. even if this turns out to be only half correct, then we need to better understand the process of internationalisation of the rmb, including the pitfalls and the opportunities. this conference is another important step in that journey of understanding. internationalisation of the rmb and capital flows at the outset, i think it is useful to be precise about what we mean when we talk about “ internationalisation ”. in my view, for a country ’ s currency to be viewed as internationalised there are two key conditions that need to be met. the first is that the country ’ s currency is used for transactions between its residents and nonresidents. the progress that china is making in this area is significant, particularly on the trade side. over the past few years, the share of china ’ s international trade that is denominated in rmb has risen significantly and this trend is expected to continue. on the investment side, there has been an expansion in the schemes that permit approved foreign residents to invest rmb in china. indeed, over recent times a number of central banks ( including the reserve bank ) have invested some of their foreign currency reserves in rmb. the market for offshore rmb - denominated bonds has also grown strongly, with chinese residents accounting for the majority of issuance. further, plans have been announced to allow chinese residents to invest rmb in approved offshore destinations. the second condition is that the currency is used in transactions between non - residents. in particular, a truly internationalised currency is one where : i. non -

we have a strong interest in china ’ s financial reform journey being a successful one. financial reform can play a significant role in promoting economic and financial stability in our major trading partner. furthermore, over time, a change in the structure of chinese capital flows could have significant implications for our own capital and asset markets. and, an increased demand for hedging products and other financial instruments could open up new opportunities for our financial institutions. in the immediate future, australia ’ s already strong trade links with china and the growing financial linkages between our two countries mean that there are mutually beneficial opportunities from rmb internationalisation. 2 some of these are explored in cifr ’ s research report, and will be discussed by geoff weir later today. for example, australia ’ s funds management industry can benefit from increased investment opportunities within china as inward capital flows to china increase. it can also benefit from sharing its expertise with i have previously discussed some aspects of this deepening financial relationship in lowe p ( 2013 ), “ the journey of financial reform ”, address to the australian chamber of commerce in shanghai, shanghai, 24 april. bis central bankers ’ speeches chinese funds managers and / or providing direct funds management services to chinese investors as private outward capital flows from china increase. similarly, the use of rmb for trade settlement in commodity markets may also be mutually advantageous. in this context, the results of the survey that cifr has conducted of australian and chinese firms ’ attitudes towards the use of rmb as a trade invoicing currency are particularly relevant. the cifr survey is an extended version of an earlier rba survey of australian firms that was conducted, with the help of local banks, in the lead - up to the inaugural australia - hong kong renminbi trade and investment dialogue held in sydney in april last year. 3 the more recent survey – which kathy walsh will present later today – highlights the fact that many chinese firms still are not aware that rmb can be used as a trade settlement currency. more positively, some of the impediments to rmb trade settlement that were evident in the rba ’ s initial survey in 2013 – in particular, those related to administrative burden and payment delays – appear to have recently lessened somewhat. with the second australia - hong kong renminbi trade and investment dialogue coming up in may, the survey results highlight the importance of efforts to educate firms in both australia and china about both the rmb trade settlement process and the rmb banking and he