SYDNEY, March 26 (Reuters) - China’s ambitions to internationalise the renminbi are likely to be a “seismic event” for global markets, leading to large capital flows and perhaps a new reserve currency, a top Australian central banker said on Wednesday.
Reserve Bank of Australia (RBA) Deputy Governor Philip Lowe said the process had some way to go yet but that Beijing had signalled its seriousness by widening the trading band for its currency last week.
“The internationalisation of the RMB - and China’s associated move towards a liberalised capital account and more flexible exchange-rate regime - has the potential to create a seismic shift in the international monetary and financial landscape,” Lowe said in a speech.
“History teaches us that financial deregulation is an inherently risky process, but that there are substantial payoffs if it is done well,” he added.
China is already Australia’s biggest single trading partner, taking over a third of the country’s exports.
An eventual freeing up of the capital account would likely lead to significant flows of Chinese funds offshore and greater demand for products with which to hedge foreign currency risk, Lowe said.
Deregulation would not be without risks, particularly as China’s financial sector was already very large relative to its economy.
But Australia’s experience with floating its currency showed there were substantial benefits, including greater control of monetary policy.
For China, it might ultimately lead to the renminbi becoming a global reserve currency alongside the U.S. dollar, Lowe said.
It could also be a boon for Australian banks and fund managers, opening up increased investment opportunities within China and helping to manage Chinese flows into Australia, Lowe added.
Editing by Jan Paschal