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Emerging Markets

FINAL WORD - Renminbi and rupee: the new reserve currencies?

With China and India set to become two of the world's biggest economies in the next 50 years, will their currencies become the new mainstays of central bank reserves?

  • 01 Nov 2004
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The profligate Mr. Bush has returned, and brought with him the spectre of conflicting possibilities on the dollar, or so the pundits already have it. If he continues as before with his fiscal policies, the dollar is doomed to decline, unless various Asian central banks continue to bail him out. Except, as the Messiah of the New American Century, Mr. Bush cannot let the dollar go, for no empire in history has lasted for long with a debased currency.

The US is the world's most competitive economy and it is working hard to keep itself that way. Already, the American academic press is lamenting the fall in US immigration of skilled people and the business roundtable is quantifying losses to US companies of bad visa procedures. Also, the US has a high birth rate, and the electorate has made it clear that it is willing to live with an economically stratified society, in order to keep a variety of jobs in the US. The US will succeed in taming the deficit in the medium term, and therefore may succeed in remaining top dog for some time to come.

The history of the past few decades has been that, as countries develop and their work-forces gain in earnings, their currencies rise. The cute bit about this century is that two of the countries doing the gaining, China and India, will be two of the three largest economies in the world and the two most populous. So, what would otherwise be called the rise of their currencies may equally be called the decline of the dollar, the yen and the euro; the renminbi and the rupee may well be reserve currencies of the future.

There is precedent; for a long time the Middle East was the rupee zone, with many countries in the area using the Indian rupee as legal tender.

What will come in the way of this rosy picture is that India and China are foolishly subsidizing developed countries. Not in the conventional wisdom of buying dollars and holding them at a low rate of interest—anyway India is already debating using its reserves for infrastructure spending. Rather, by holding their currencies down, they are preventing the development of real value-added enterprise in their countries, and are making it easier for developed countries to hog natural and human resources.


Why do Indian IT companies and Chinese toy companies sell their product for ridiculously low prices? Because they must, and because they can. They must, for otherwise competitors based in their own country will eat them alive. They can, because even at such prices they are viable businesses that can get financing and expand at astonishing rates making their owners ever richer, often helped by foreign investment.

India and China must remember what has kick-started their growth. For both it was domestic deregulation and a greater opening up to trade. More of the same will keep the ball rolling, particularly if spiced up with a good exchange-rate policy.

The way for India and China to compete is not to hold their currencies down, thus financing trade, or jobs, or some other chimera. It is to raise exchange rates over time (preferably while the US is still struggling) to something like their value on the Big Mac Index. A rough doubling of their exchange rates over the next five to seven years will not harm the bulk of their industry; their inexhaustible supply of cheap labour will keep them competitive. What it will do is move industry away from simple manufacturing such as textiles and garments into more complex, value-added manufacturing, such as engineering, that their large and rather sophisticated economies are capable of supporting. From “just add labour” to “just add brains”. This will raise productivity and reduce the amount of capital required to maintain their growth rates.

The competitiveness of imports will spruce up many sectors of the economy catering to domestic demand. A strong currency will hold down inflation, and allow for the retention of skilled people in the country (a manager would rather make US$100,000 equivalent than US$50,000 equivalent).

It will also make the two more able in the hunt for natural resources, including oil, and do a bit of good to the environment as well. A higher dollar price for oil will finally force the development of alternative energy, with the burden on the developed world, where it belongs. am

  • 01 Nov 2004

Bookrunners of International Emerging Market DCM

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 20 Oct 2014
1 HSBC 45,452.86 307 0.00%
2 Citi 43,253.65 214 0.00%
3 JPMorgan 37,633.32 164 0.00%
4 Deutsche Bank 31,769.17 161 0.00%
5 Bank of America Merrill Lynch 24,070.56 131 0.00%

Bookrunners of LatAm Emerging Market DCM

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 21 Oct 2014
1 Citi 11,936.75 53 10.74%
2 HSBC 11,252.06 44 10.12%
3 JPMorgan 11,171.33 36 10.05%
4 Bank of America Merrill Lynch 11,029.46 41 9.92%
5 Deutsche Bank 9,109.83 32 8.20%

Bookrunners of CEEMEA International Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 21 Oct 2014
1 Citi 14,311.28 56 0.00%
2 JPMorgan 12,715.85 38 0.00%
3 HSBC 9,229.41 40 0.00%
4 Deutsche Bank 8,882.51 37 0.00%
5 Barclays 8,593.93 26 0.00%

EMEA M&A Revenue

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 20 Oct 2014
1 Goldman Sachs 337.31 112 7.73%
2 JPMorgan 312.96 103 7.17%
3 Bank of America Merrill Lynch 265.63 81 6.08%
4 Lazard 257.50 126 5.90%
5 Deutsche Bank 254.78 94 5.84%

Bookrunners of Central and Eastern Europe: Loans

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 21 Oct 2014
1 ING 1,794.39 18 7.86%
2 SG Corporate & Investment Banking 1,756.32 12 7.69%
3 UniCredit 1,732.50 13 7.59%
4 RBS 1,692.14 6 7.41%
5 Citi 1,529.52 13 6.70%

Bookrunners of India DCM

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 22 Oct 2014
1 Standard Chartered Bank 3,393.34 33 5.02%
2 AXIS Bank 2,887.35 77 4.27%
3 HSBC 2,429.75 26 3.60%
4 Deutsche Bank 2,311.91 33 3.42%
5 ICICI Bank 2,046.44 54 3.03%