burkhard balz : the role of the renminbi in international payments keynote speech by mr burkhard balz, member of the executive board of the deutsche bundesbank, at the 5th european - chinese banking day as part of the euro finance week, frankfurt am main, 14 november 2018. * * * 1 introduction ladies and gentlemen, there ’ s an ancient chinese proverb which reads : “ don ’ t be afraid to be slow. be afraid only of standing still. ” and indeed, tenacity and staying power often do pay off. patience and perseverance are also called for when it comes to anchoring the renminbi in the group of key international currencies. i am pleased to be able to highlight this topic – the role of the renminbi in international payments – in my keynote speech here today, at what is already the fifth european - chinese banking day. 2 the internationalisation of the renminbi : the story so far the internationalisation of the renminbi is certainly a less prominent topic in current debate than it was a few years ago. on the other hand, the political influences that impact on the renminbi today feature somewhat more strongly. the spectre of a trade war between the united states and china is omnipresent, and accusations of currency manipulation and of a currency war as a result haven ’ t quite died down yet. in my speech today i would like to look more closely at these and other topics. for quite some time now, the chinese government has been pursuing the long - term aim of bringing the use of the renminbi in international payments, amongst other things, into line with the importance of the chinese economy. moreover, the chinese want to strongly increase the influence of the renminbi as a trading and investment currency. yet developments surrounding the renminbi in the individual areas are not always synchronous. a look at the statistics will give you an idea of why i speak of patience and perseverance in the context of the renminbi ’ s role in international payments. whereas the share of global economic output accounted for by china in 2017 was just over 17 %, 1 the renminbi ’ s share in international payment flows in august 2018 was a mere 2. 12 %. 2 the us dollar and the euro find themselves in a different position. the share of global economic output for the us in 2017 was 15 %, and that for the euro just over 16

bundesbank, in its current forecast for 2012, is expecting germany ’ s economy to grow by 0. 6 %. however, since the domestic factors for an upswing remain intact, we expect germany to turn onto a recovery path before the end of next year. supported by an expansionary monetary policy and a growing global economy, growth in 2013 should then return to 1. 8 %. this means that, in the next two years, the german economy ’ s capacity utilisation would therefore be normal. a probable average increase of 2. 5 % for this year is likely to be followed by a return to a much lower cost of living in the coming two years, which the bundesbank currently expects to be 1. 8 % in 2012 and 1. 5 % in 2013. bis central bankers ’ speeches this forecast, of course, is based on the assumption that the sovereign debt crisis will be gradually overcome and will not continue to escalate. this crisis is, and will remain, the single greatest risk to the financial system and the real economy. for this reason, i would now like to take a closer look at the sovereign debt crisis, focusing on three questions. first, what actually caused the crisis? second, how do we contain the crisis? third, where do we want to go with monetary union in the long run? the causes of the sovereign debt crisis unsound economic developments had apparently been brewing in several euro - area countries for many years. these include, in particular, excessive lending, asset price bubbles and a loss of competitiveness. these structural deficits were the breeding ground for the sovereign debt crisis. the actual weak link at the launch of monetary union, however, was the combination of a single monetary policy and decentralised fiscal policy. monetary policy is set at the european level – by the european central bank. by contrast, responsibility for fiscal policy rests with the individual member states, ie at national level. this severance of responsibilities was already at the centre of the debate when monetary union was being established. in a currency area with a decentralised fiscal policy, the member states have an increased incentive to borrow. any country that goes deeper into debt does not face the consequences by itself, as these are spread across the entire currency area – for example, through every country ’ s interest rates increasing. the founding fathers of monetary union therefore created a framework of rules to prevent, or at least correct, such unsound developments : the stability and