RMB expected to become fully convertible in 2-3 years: HSBC
By Kathryn Chiu, The China Post
January 29, 2014, 12:08 am TWN
TAIPEI, Taiwan -- HSBC Co-Head of Asian Economics Research, and Chief Economist for Greater China Qu Hong-bin (屈宏斌) recently predicted that the renminbi (RMB) may achieve full convertibility in two to three years.
Qu Hongbin said in a recent strategic investment outlook that with financial reform and opening-up of capital accounts, China will gradually unlock the potential demands of mainland companies for overseas financing, and companies' outward direct investment (ODI) is expected to exceed foreign direct investment (FDI) in 2013 and 2014 for the first time in over three decades.
Qu predicted that the Reminbi exchange rate against the greenback will reach 5.98 this year, and that the Renminbi may achieve full convertibility in two to three years.
Qu stated that the RMB is now much less undervalued than it used to be, adding that RMB currency value in fact falls on the " Neutral" range on HSBC's valuation ranking of the world's 33 major currencies.
However, Qu said that the mainland government should step up and internationalize the RMB, starting with the widening of the currency's trading band. He said that RMB's national influence is way behind its economic fundamentals.
According to HSBC data in 2013, although China's gross domestic product (GDP), trade FDI & ODI represent 10-12 percent of the world's, RMB trade settlement occupies less than 1 percent.
The International Monetary Fund (IMF) said in a report release last year that RMB is undervalued by 5-10 percent on an inflation-adjusted basis given the fundamentals of the country's economy.
In early January, the Governor of the People's Bank of China Zhou Xiaochuan (周小川) said that the economy must rely on reform and not on loose monetary or fiscal policy to sustain growth.
It is widely believed that the People's Bank of China will still intervene heavily to slow currency appreciation, and the RMB will probably reach 6 RMBs per U.S. dollar by the end of 2014.