How Far Can Renminbi Internationalization Go?
AbstractSince the formal launch of the renminbi trade settlement scheme in 2009, renminbi internationalization has made impressive inroads. The progress in renminbi trade settlement is especially impressive. However, Hong Kong, China’s offshore renminbi deposits failed to make significant progress as expected. The question of how far renminbi internationalization can go has become a common concern in the international financial community. This paper argues that the sheer size of the People’s Republic of China’s (PRC) trade and the convenience of using the renminbi for transaction settlements is one contributing factor, but that exchange rate arbitrage and interest rate arbitrage matter also. As well, a fundamental constraint for renminbi internationalization is the PRC’s capital controls. Before fully opening up its capital account and making the renminbi freely convertible, however, the PRC needs first to put its own house in order, most importantly making the renminbi exchange rate flexible. While the renminbi can and will become a major international currency eventually, the road to internationalization is bound to be long and bumpy.
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Bibliographic InfoPaper provided by Asian Development Bank Institute in its series ADBI Working Papers with number 461.
Length: 28 pages
Date of creation: 14 Feb 2014
Date of revision:
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renminbi; trade settlement; capital account liberalization; capital controls; store of value;
Find related papers by JEL classification:
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-02-21 (All new papers)
- NEP-INT-2014-02-21 (International Trade)
- NEP-MON-2014-02-21 (Monetary Economics)
- NEP-SEA-2014-02-21 (South East Asia)
- NEP-TRA-2014-02-21 (Transition Economics)
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