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The Full Convertibility of Renminbi: Sequencing and Influence

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Author Info

  • Shucheng Liu

    (Economics Institute, Chinese Academy of Social Sciences)

  • Zhijun Zhao

    (Economics Institute, Chinese Academy of Social Sciences)

  • Yue Ma

    (Lingnan University)

  • Matthew S. Yiu

    (Hong Kong Institute for Monetary Research)

  • Yak-yeow Kueh

    (Lingnan University)

  • Shu-ki Tsang

    (Hong Kong Baptist University)

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Abstract

This paper examines the issue of achieving full convertibility for the Chinese currency, Renminbi (RMB), and its impact on the economies of both mainland China and Hong Kong. It focuses on the sequencing of Renminbi¡¦s full convertibility, clarifying the different concepts of currency convertibility, i.e. current account convertibility, capital/financial account convertibility, and full convertibility. It also discusses the differences between removing restrictions on international transactions and removing restrictions on the exchange of foreign currencies. There still exist various extremely strict restrictions on capital/financial account convertibility in China. There is still a long way to go before these restrictions can be removed completely. China¡¦s accession to the World Trade Organization (WTO) will surely drive the course of Renminbi¡¦s full convertibility. However, the Renminbi may not become a fully convertible currency within the five years after China¡¦s accession to the WTO. This paper comes to the conclusion that there does not exist a uniform or fixed sequence in adopting the full convertibility of a currency due to the differences between countries. At the same time, based on the common practices and basic sequence taken by most countries in the world, drawing on the experience and lessons from other countries¡¦ practice and given the fact that China is a large developing country, we also conclude that a progressive and prudent sequential process is needed for the full convertibility of Renminbi.

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Bibliographic Info

Paper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 092002.

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Length: 45 pages
Date of creation: Apr 2002
Date of revision:
Handle: RePEc:hkm:wpaper:092002

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Keywords: convertibility of Renminbi; WTO; China; Hong Kong;

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References

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  1. Chen, Shikuan, 2000. "Endogenous real exchange rate fluctuations in an optimizing open economy model," Journal of International Money and Finance, Elsevier, Elsevier, vol. 19(2), pages 185-205, April.
  2. Ma, Yue & Kanas, Angelos, 2000. "Testing for a nonlinear relationship among fundamentals and exchange rates in the ERM," Journal of International Money and Finance, Elsevier, Elsevier, vol. 19(1), pages 135-152, February.
  3. Tsang, Shu-ki & Ma, Yue, 2002. "Currency substitution and speculative attacks on a currency board system," Journal of International Money and Finance, Elsevier, Elsevier, vol. 21(1), pages 53-78, February.
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Cited by:
  1. Dong He & Lillian Cheung & Wenlang Zhang & Tommy Wu, 2012. "How would Capital Account Liberalisation Affect China's Capital Flows and the Renminbi Real Exchange Rates?," Working Papers, Hong Kong Institute for Monetary Research 092012, Hong Kong Institute for Monetary Research.

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