China’s currency on the international horizon

Optimistic predictions for renminbi internationalisation in recent years have been more grounded in techno-optimism and geopolitical grievances than hard macro-financial mechanics. Whether it was the 2020 e-yuan pilot, ambitious BRICS statements following Russia’s Ukraine invasion, or the erosion of US institutions under the second Trump term, the USD-alternatives crowd has looked eagerly towards Beijing.

Yet, progress has fallen short of expectations. To understand why, we must look past the headlines and interrogate the structural friction inherent in China’s macroeconomic policy. To reach a virtuous cycle of wider usage—the threshold for strong network effects that sustain global reserve currencies—the renminbi needs to become more than just a medium of exchange, it must become a competitive store of value.

The store-of-value trap

The conventional wisdom points to two immediate dampeners on renminbi internationalisation: the currency is widely seen as undervalued (incentivising holding over borrowing), and geopolitical frictions involving China have made exposure a reputational liability and wider country risk for Western firms.

But the deeper issue is a functional disconnect. Internationalisation requires a currency to perform three roles: unit of account, medium of exchange, and store of value. China has successfully pushed the first two via its growing role in the global trading system. Foreign entities are increasingly willing to use the renminbi for trade. But China has struggled to promote the store of value role, because entities are fundamentally unwilling to hold it between trade transactions.

China’s persistent current account surplus and capital controls are often cited as barriers, but they are better understood as symptoms of a strategic choice: Beijing is unwilling to loosen control over domestic financial stability.

The two-currency problem

Key to understanding China’s predicament is that when a country maintains tight capital controls and an international currency, it is effectively operating two separate currencies. In an open economy (with free cross-border capital flows), private arbitrage ensures that onshore and offshore rates remain in sync. In a closed economy the state must maintain this synchronisation through intervention.

Operationally, this burden falls on the Hong Kong Monetary Authority (HKMA). By manipulating offshore interbank rates (CNH HIBOR), the authorities drain offshore renminbi liquidity to maintain the two exchange rates at par and defend the currency against speculators. However, by sanctioning occasional interest rate spikes and therefore creating rollover risks, China has been pushing away the very corporate borrowers it is trying to attract.

To solve this, China isn’t liberalising its capital account. Instead, it is building a "workaround" for private market participants.

The RBF: a pass to onshore liquidity

The introduction of the RMB Business Facility (RBF) in late 2025 represents a shift to a more sophisticated “simulated openness,” which retains capital controls but allows offshore-renminbi borrowers to access liquidity at onshore rates.

The RBF allows pre-approved banks to access credit based on onshore interbank rates (SHIBOR), provided borrowers can put up high-quality Hong Kong or mainland-originated collateral. This allows non-speculative borrowers to dodge offshore interest rate volatility during periods of renminbi defense.

This mechanism brings two strategic benefits to China:

Credible deterrence: Because the RBF protects "good" borrowers from rate spikes, the authorities have much greater leeway to drastically tighten liquidity to crush "bad" speculators. This change brings increased credibility that should dissuade would-be speculators from attack in the first place.

Ecosystem integration: As international corporate treasuries come to rely on the RBF facility to smooth cash flows, they become integrated more widely into a renminbi-denominated financial system that mimics the benefits of an open home market without the loss of state control.

A unique path towards international financial integration

This workaround has never been attempted at scale. It is a bold experiment in whether a fuller suite of borrowing options can spur a meaningful uptake in renminbi usage, even while geopolitical tensions and restrictions on the flow of funds into and out of China remain in place.

If it is successful, the long awaited dismantling of capital controls—just a decade ago a policy priority—can be pushed into the long term indefinitely. However, this will bring other internationalisation policy challenges to the fore. Among these will be the question of which channels China will prioritise to increase the overseas renminbi deposits that are needed as the base for lending in the currency by foreign banks. Stalling new official lending under the Belt and Road Initiative suggests that policy choices in this area will not be straightforward.

Radiant Intel helps clients track regulation related to onshore financial market access and monitor differences between on- and offshore renminbi liquidity via a variety of economic indicators, to give an up-to-date picture of the state of currency internationalisation and highlight market opportunities.