Recall in all our discussions about the issues China has with detaching itself from the United States of Reckless Spending is the lack of (a) a mature bond market and (b) a free floating currency. It's a matter of when, not if, at this point for these things to happen.

Today's Financial Times reports China is taking the first small step for man...before the eventual giant leap for mankind. The amounts are tiny but the precedent has been borne; file this moment away for historical reference circa 2018 or so.

  • China will issue sovereign bonds denominated in its own currency to offshore investors for the first time this month – a crucial step towards making the renminbi a global currency.
  • The country’s finance ministry said it would issue Rmb6bn ($879m) of bonds in Hong Kong on September 28, in a move to “improve the international status” of the currency and to help mainland companies raise funds in the offshore bond market.
  • “While the amount is not large, this is a significant development for the internationalisation of the renminbi and for the development of the Hong Kong bond market,” said Wensheng Peng, an economist at Barclays Capital.
  • ... developing an offshore bond market will be crucial if the renminbi is to become a truly global currency, as it would provide foreign institutions with an attractive means with which to hold the renminbi.
  • The process would take time, said Frederic Neumann, regional economist at HSBC in Hong Kong, but issuing government bonds was an important step. He said the market in government bonds would help set the benchmark “risk-free” interest rate for renminbi debt, paving the way for further issuance by mainland companies.

We've been speaking of the bilateral currency agreements that exclude the US dollar; I have not devoted a specific piece to that but I see something with a new country every 6-8 weeks.

  • Beijing has taken a number of steps in the past year to encourage greater use of the renminbi in international transactions, beginning a process to decrease its dependence on the US dollar.
  • Beijing has signed deals since December with Malaysia, South Korea, Belarus, Indonesia and Argentina that allow it to receive renminbi instead of dollars for its exports to those countries.

The world's a changin'

[Aug 30, 2009: Niall Ferguson - Chimaerica (China + America) is Headed for Divorce]