RMB Internationalization and the Future Impact on Italian Companies and Strategy

Abstract

The foundation of RMB internationalization is the growth of the Chinese economy. More and more traded goods are made in China. More wealth created in China is being invested in other parts of the world. Trading and investments of Chinese goods and wealth are more easily conducted in RMB. RMB internationalization facilitates the movement of Chinese goods and investments in the global economy. A major challenge to RMB internationalization is China's currency controls. While China has reformed and opened its economy, the government maintains strict currency controls that limit the ability of Chinese people to take money out of the country and foreigners to bring money into the country. Without free conversion, it is difficult for RMB to be used by foreign companies and individuals because they cannot bring it to China and use it freely in China. A second major challenge is the recent drop in the value of the RMB relative to the U.S. dollar and Euro. The drop in value of the RMB is causing Chinese people to move their wealth from RMB to foreign currencies and flight of capital from China is actually causing the government to tighten currency controls. Thus, the RMB is even less convertible today than two years ago, and this trend does not support RMB internationalization. The consequences of RMB internationalization will affect the world. How will the impact be on Italian companies? But why is Italy is not using RMB? RMB Internationalization will happen eventually. However, the two challenges discussed have made the evolution of the RMB difficult. As both domestic and international factors evolve, the Chinese government will be able to tackle some of these issues and the RMB will internationalize. The effect on Italy and Italian companies, however, will be slower.