Sovereign RMB bonds—the shape of things to come?

Sovereign RMB bonds—the shape of things to come?

Will other western nations follow the UK’s lead and issue sovereign bonds in the renminbi (RMB)? Andrew Bliss, partner at King & Wood Mallesons, considers what the UK’s issuance means for the future of the RMB in the international capital market.

Original news

The UK has become the first ever western government to issue a sovereign bond in the RMB, China’s currency. The bond is worth RMB 3bn, equivalent to approximately £300m, has a maturity of three years and is the largest ever non-Chinese RMB to be successfully issued.

This is the first sovereign bond issue in RMB in the west by a non-Chinese issuer. How significant is this for the financial markets?

The recent issue of a bond by HM Treasury on behalf of the UK government is a significant further step in the internationalisation of the RMB. The offshore RMB debt market has grown extremely rapidly in recent years. Outstanding offshore RMB bonds and certificates of deposit reached approximately RMB 634bn by February 2014, having increased from almost zero only four years ago. The issuance, while not in itself a large increase, is a symbolic step both in terms of the issuance of RMB bonds by a sovereign issuer and the acceptance of the RMB by the UK government. This transaction should be seen in the context of the active steps taken by HM Treasury to try and ensure that London is seen as one of the main RMB overseas financial centres.

Is the RMB a freely available currency now?

Capital controls have been in place since the founding of the People’s Republic of China in 1949.

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