In the midst of the global currency wars, China has stuck to its guns. While speculative hopes of rapid gains in the renminbi have dimmed, China’s policy of steady appreciation remains intact, prompting talk of a new safe haven.

“As use of the renminbi spreads globally, it could become a safe-haven currency, especially in a world where the renminbi might gain 2 or 3 per cent a year against the dollar, while the Swiss franc may yield nothing,” says Patrick Law, head of greater China trading at Barclays Capital in Hong Kong.

Within Asia, the Singapore dollar and the Japanese yen have been the traditional risk-aversion currency plays. But, for those who can access it, the renminbi could soon join them.

“In recent months, we’ve seen signs behind the scenes that the renminbi is becoming a safe haven,” says Mitul Kotecha, head of foreign exchange strategy at Crédit Agricole Corporate and Investment Bank in Hong Kong. “The crisis may actually accelerate the use of the renminbi globally.”

In August, Chinese consumer price inflation fell for the first time in months, following a period where the authorities had briefly tolerated stronger gains in the renminbi. China has often used the exchange rate as one of its policy tools for combating rising prices by reducing the cost of imported food and fuel.

If inflation has decisively peaked, then appreciation may move down a gear, though consensus points to steady gains of between 3 and 5 per cent a year.

A greater worry for investors, however, would be an end to appreciation altogether. In 2008, in the midst of the global credit crunch, China responded to economic uncertainty by halting the rise of the redback – instead resorting to a de facto peg against the US dollar.

With growing concerns of a double-dip recession in the US and Europe, could China do the same thing again?

“In the worst-case recession, there is a risk of a return to the peg. The export sector still employs a lot of people in China,” says Puay Yeong Goh, foreign exchange strategist at Credit Suisse, the banking group.

However, most analysts, including Mr Goh, believe things are different this time.

“China is less inclined to return to the peg – we’re at a point where it would be seen as a big step back,” says Mr Kotecha. The changing nature of China’s inflation problem could also be a factor.

“In 2008, inflation peaked and then fell rapidly. Now, inflation will remain sticky,” says Mr Law. “Only if China slows sharply will the peg return, otherwise the policy of steady appreciation will be maintained.”

For now, the main barrier preventing the renminbi from achieving safe-haven status is a lack of accessibility for global investors.

“It has the potential to be a safe haven, but that is far from realised,” says Nicholas Kwan, head of Asia research at Standard Chartered Bank. “In practical terms, there aren’t many channels to get into the renminbi, and liquidity remains too low.”

“The question is how fast the renminbi achieves full convertibility. Will we still need such a safe haven in five years? I hope not.”

In Hong Kong, where residents can purchase up to Rmb20,000 ($3,130) a day, the amount of the currency on deposit in the city’s bank accounts has soared in the past year, reaching more than Rmb550bn, or 10 per cent of the total on deposit in Hong Kong.

But the investment opportunities remain scarce. Dim sum bonds – the name given to renminbi-denominated debt issued offshore in Hong Kong – cover only 20 per cent of Chinese currency on deposit.

In 2010, there were just 17 dim sum bond issues, compared with 59 so far this year, according to Dealogic, the data provider.

Despite this rapid growth in issuance, supply has been unable to keep up with demand. As a result, such bonds are trading at “very rich levels”, says Mr Goh.

That could change if inflation shows signs of falling. the Chinese authorities have been wary of allowing mainland companies to raise funds at low interest rates in Hong Kong and repatriate that money onshore.

For example, yields on a recent dim sum bond issued by Unilever, the consumer goods group, was just 1.15 per cent.

But in August, Li Keqiang, China’s vice-premier, announced a quota system to allow mainland companies to raise up to Rmb50bn in the dim sum market.

It coincided with the third renminbi-denominated bond issue by the country’s ministry of finance, seen as a vote of confidence in the dim sum experiment.

“As inflation slows, we should see more dim sum bond issuance,” says Mr Law.

“We are likely to see bigger issues with longer maturity, which will help meet the demand for safe-haven investments.”