Today, the currency markets largely revolve around the American currency as the world’s reserve currency, but the future of money markets lies with the Renminbi, not the American dollar. In China, the government still has a closed capital account and employs strict cross-border capital controls. As a result, the Renminbi is not in high demand internationally. The Renminbi is therefore an extremely undervalued currency, which holds the potential of surpassing the American dollar as the world’s reserve currency. Indeed, although there are risks with investing in China, the rewards provided by the Renminbi are even higher.
In 2009, China slowly began the process of internationalizing its currency. Indeed, in 2011, the government created an offshore market for the currency in Hong Kong, allowed trading in the US and allowed the use of the currency for mergers and acquisitions. Rather than continuing to peg the Renminbi to the US dollar, China has also started a flexible currency regime. Furthermore, China has the second largest economy in the world, and will soon overtake the American economy, some predict as soon as 2019. Whereas American productivity has largely remained sluggish, China’s has undergone tremendous growth. China’s recent economic liberalization has paid dividends for its currency, as the Renminbi has increased in value by approximately 30% against the American dollar. In addition, the bond market for the currency has grown at an extremely high rate, and now includes major issuers, like McDonald’s. Despite the Renminbi’s growth, China’s government still has much work to do in order to further spread its currency abroad. Indeed, while it has begun to internationalize its currency, the government still heavily restricts its domestic financial system and has not completely liberalized its economy. Regardless of these challenges, however, the fact remains that the Renminbi is currently an undervalued currency, which provides a great investment opportunity. For these reasons, the choice is simple: I would want to be the Renminbi.