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Capital Account Liberalization and the Role of the Renminbi

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  • Nicholas Lardy

    ()
    (Peterson Institute for International Economics)

  • Patrick Douglass

    ()
    (Peterson Institute for International Economics)

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    Abstract

    Despite an erosion of consensus on its benefits, capital account convertibility remains a long-term goal of China. This paper identifies three major preconditions for convertibility in China: a strong domestic banking system, relatively developed domestic financial markets, and an equilibrium exchange rate. The authors examine each of these in turn and find that, in significant respects, China does not yet meet any of the conditions necessary for convertibility. They then evaluate China’s progress to date on capital account liberalization, including recent efforts to promote renminbi internationalization and greater use of the renminbi in trade settlement. The paper concludes with an overview of remaining obstacles to convertibility and policy recommendations.

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    Bibliographic Info

    Paper provided by Peterson Institute for International Economics in its series Working Paper Series with number WP11-6.

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    Date of creation: Feb 2011
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    Handle: RePEc:iie:wpaper:wp11-6

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    Keywords: China; renminbi; capital account;

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    Cited by:
    1. Meixing Dai, 2011. "Motivations and strategies for a real revaluation of the Yuan," Working Papers of BETA 2011-23, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.

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