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Chapter One Global Monetary Transformation and Respatialising the Geographies of Finance

Respatialising Finance positions international financial centres as vital – but often overlooked – analytical lenses through which to understand the changing position of Chinese finance within the international financial system and specifically the internationalisation of its currency, the renminbi (RMB). In so doing, I develop a revitalised reading of financial centres that places questions of the state, politics and power more centrally in both their own internal dynamics and in their role in shaping global finance. Since the 2007–2008 financial crisis, the growing internationalisation of the RMB has been one of the most significant developments within global monetary relations. Indeed, in 2014, Deutsche Bank argued that the internationalisation of the RMB was the most significant development in international monetary affairs since the launch of the euro in 1999 (Deutsche Bank 2014). It refers to the relatively rapid and recent transformation in the geography of the Chinese currency facilitated through Chinese state support in the form of the People’s Bank of China in particular. This geography has been transformed from a situation in the early 2000s in which flows of RMB in and out of mainland China were heavily restricted to one in which, by July 2020, it was the fifth most commonly used currency for payments internationally behind the US dollar, sterling, the euro and the yen (SWIFT 2020). Meanwhile, the growing international status of the RMB was also reflected in the International Monetary Fund including the RMB in its basket of special drawing rights (SDR) from October 2016 together with the US dollar, the euro, the yen and sterling. Kirshner (2014: 220) provides a valuable summary of the early motivations and uncertainties surrounding RMB internationalisation:

      “Prior to the global financial crisis RMB internationalization was already a gleam in the eye of elites in China, but it was understood that the yuan was a long way off from serving as an important international currency. The dominant position of the dollar, the emergence of the euro, and the fragility of China’s sheltered, murky domestic financial sector (in contrast with the venerable institutions and market powerhouses to be found in the West) tempered expectations about how quickly the RMB might take its place as a currency widely used in international transactions, let alone held as a reserve asset. Nevertheless, such ambitions, however distant, were clearly harboured, and as China continued its rise to great power status it was natural to assume that a greater international role for a maturing RMB would be part of that process”

      Although the future of RMB internationalisation is uncertain and has slowed since 2015, there are a number of indicators which point to marked changes in the position of the currency internationally, and by extension the role of China within the international financial system (Chey and Vic Li 2020). For example, China now holds the largest foreign currency reserves of any country. These are used to support the pegging of the renminbi (RMB) to the US dollar. These stockpiles are also used to support China’s international trade policy. Increases in Chinese holdings of US dollars raises the value of the US dollar compared with the RMB, meaning that Chinese exports become cheaper than their US counterparts. Moreover, its exchange rate policy is closely monitored internationally, often shaping the exchange rate policy of other countries (Helleiner and Kirshner 2014). Meanwhile, significant infrastructure spending arising from the Belt and Road initiative (BRI) that spans central Asia, Central Africa and Eastern Europe involves financing from state-owned banks, sovereign wealth funds such as the China Investment Corporation as well as multilateral investment funds such as the Silk Road Fund. In so doing, the BRI therefore raises important questions about how these rapidly evolving financial institutions sit alongside and potentially reshape international financial relations (on which see Lim 2010, for example).

Respatialising Finance argues that the financial centre provides a valuable but hitherto comparatively neglected entry point into understanding RMB internationalisation. Indeed, in many ways, the lack of sustained engagement with financial centres in relation to RMB internationalisation is surprising because it has developed through a distinctive spatial footprint comprising a network of offshore (beyond mainland China) financial centres. Echoing Hong Kong’s position as an experimental site for the reform and internationalisation of the Chinese economy more generally (Chen and Cheung 2011), Hong Kong became the first such centre in mid-2010 (Walter and Howie 2011). Since then, a small number of other financial centres, including Singapore, Taiwan and London, have developed significant RMB financial markets (Hall 2017). These offshore RMB centres can be defined as a financial centre ‘outside [mainland] China that conducts a wide variety of financial services denominated in RMB’ (ASIFMA 2014: 20) that connects with onshore financial services in mainland China (Subacchi and Huang 2012). These centres host a designated RMB clearing bank, hold sizable, although varying, amounts of RMB deposits and have seen the development of a range of RMB markets. They are supported by a number of offshore financial RMB hubs (such as Paris, Luxembourg and Frankfurt) that access mainland China partly through the offshore RMB centres. Hong Kong remains the largest offshore RMB centre and has been the most widely studied to date (see Fung and Yau 2012).

      However, less attention has been paid to how and why financial centres beyond mainland China become enrolled within RMB internationalisation. Respatialising Finance responds to this by examining how and why London became the leading Western financial centre within the wider Chinese economic and political project of RMB internationalisation. My analysis is based on a research project dating back to 2015 that focused on the growth of wholesale Chinese finance in London’s financial district. Echoing my earlier work on financial labour markets (Hall 2009), my initial interest lay in examining the growth of elite Chinese migration into London’s financial district. However, I rapidly realised that, as with earlier rounds of financial labour market transformation in London, the growth of Chinese financiers and related professionals in London signalled a more profound and structural set of changes in terms of the place of Chinese finance in London’s financial district. This was reflected in the popular discourse of the time. For example, in October 2015, the Financial Times ran the headline ‘Chinese financial institutions grow closer to the heart of London’ (Stafford 2015). The article documented London’s rise as the first and leading western offshore centre (beyond mainland China) for financial products and markets denominated in the Chinese currency – the renminbi. The article was accompanied by a picture of the Chinese flag flying in the centre of London’s historic financial district, close to the Bank of England, with the financial offices of Canary Wharf in the background. This suggested to me that marked changes were taking place in relation to the place of Chinese finance globally, and in London in particular.

As such, it quickly became apparent that my research would need to explore a range of different actors, including not only the individuals working in Chinese finance but also institutions, including banks, financial firms and regulators. By combining analysis of official data sources on RMB internationalisation in conjunction with in-depth research with people working in financial markets in London and Beijing, the arguments presented in this book identify the key actors involved in initiating and shaping RMB internationalisation. In particular, these findings reveal how state actors and regulators in both Beijing and London were critical in facilitating and promoting the development of RMB markets in London. For Beijing in particular, in many ways this finding is not surprising given the carefully planned nature of economic development in

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