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Influence of Renminbi Internationalization on China’s Monetary Policy Effects: A Theoretical Analysis

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  • Huiguan Ding
  • Asli Ogunc
  • Dale Funderburk
  • Shiyou Li
  • Zhebie Shi

Abstract

For more than a decade, the People’s Republic of China has sought to expand the degree of internationalization of its official currency. In recent decades, China has become the world’s second largest economy, as well as the world’s largest trading nation, and its securities markets are among the largest in the world. Today, the RMB is among the top five as a world payments currency. One of the significant costs of achieving higher degrees of internationalization of a country’s currency is the complicating impact it has on the efficacy and effect of that country’s domestic monetary policy. However, what is the nature and extent of that complicating impact? This paper employs an IS-LM model of an open economy as an analytical framework, embeds an RMB internationalization factor into that model. Specifically, with this model we examine the impact of RMB internationalization on the effects of China’s monetary policy.

Suggested Citation

  • Huiguan Ding & Asli Ogunc & Dale Funderburk & Shiyou Li & Zhebie Shi, 2021. "Influence of Renminbi Internationalization on China’s Monetary Policy Effects: A Theoretical Analysis," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 13(8), pages 1-14, August.
    • Handle: RePEc:ibn:ijefaa:v:13:y:2021:i:8:p:14
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    References listed on IDEAS

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    1. Chi Hung KWAN, 2018. "Issues Facing Renminbi Internationalization: Observations from Chinese,regional and global perspectives," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 14(5), pages 871-900, September.
    2. Hans Genberg, 2011. "Currency internationalisation: analytical and policy issues," BIS Papers chapters, in: Bank for International Settlements (ed.), Currency internationalisation: lessons from the global financial crisis and prospects for the future in Asia and the Pacific, volume 61, pages 221-230, Bank for International Settlements.
    3. Otani, Akira, 2002. "Pricing-to-Market (PTM) and the International Monetary Policy Transmission: The "New Open-Economy Macroeconomics" Approach," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 20(3), pages 1-34, October.
    4. Mingming Li & Fengming Qin & Zhaoyong Zhang, 2021. "Short-Term Capital Flows, Exchange Rate Expectation and Currency Internationalization: Evidence from China," JRFM, MDPI, vol. 14(5), pages 1-15, May.
    5. Hyoung-kyu Chey & Yu Wai Vic Li, 2016. "Bringing the Central Bank into the Study of Currency Internationalization: Monetary Policy, Independence, and Internationalization," GRIPS Discussion Papers 15-23, National Graduate Institute for Policy Studies.
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    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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