Internationalization of the RMB and Historical Precedents
The possibility that the renminbi may soon join the ranks of international currencies has generated much excitement. This paper looks to history for help in evaluating the factors determining its prospects. The three best precedents in the twentieth century were the rise of the dollar from 1913 to 1945, the rise of the Deutsche mark from 1973 to 1990, and the rise of the yen from 1984 to 1991. The fundamental determinants of international currency status are economic size, confidence in the currency, and depth of financial markets. The new view is that, once these three factors are in place, internationalization of the currency can proceed quite rapidly. Thus some observers have recently forecast that the RMB may even challenge the dollar within a decade. But they underestimate the importance of the third criterion, the depth of financial markets. In principle, the Chinese government could decide to create that depth, which would require accepting an open capital account, diminished control over the domestic allocation of credit, and a flexible exchange rate. But although the Chinese government has been actively promoting offshore use of the currency since 2010, it has not done very much to meet these requirements. Indeed, to promote internationalization as national policy would depart from the historical precedents. In all three twentieth-century cases of internationalization, popular interest in the supposed prestige of having the countryâ€™s currency appear in the international listings was scant, and businessmen feared that the currency would strengthen and damage their export competitiveness. Probably China, likewise, is not yet fully ready to open its domestic financial markets and let the currency appreciate, so the renminbi will not be challenging the dollar for a long time. We begin, however, by asking: What is international currency status, and why does it matter?
(This abstract was borrowed from another version of this item.)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Shinji Takagi, 2011. "Internationalising the yen, 1984-2003: unfinished agenda or mission impossible?," 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 75-92 Bank for International Settlements.
- Yin-Wong Cheung & Guonan Ma & Robert N. McCauley, 2010.
"Renminbising China's Foreign Assets,"
162010, Hong Kong Institute for Monetary Research.
- Xiaoli Chen & Yin-Wong Cheung, 2011.
"Renminbi Going Global,"
082011, Hong Kong Institute for Monetary Research.
- Cheung, Yin-Wong, 2011. "Renminbi Going Global," Santa Cruz Department of Economics, Working Paper Series qt2qn810hg, Department of Economics, UC Santa Cruz.
- Takatoshi ITO, 2010. "China as Number One: How about the Renminbi?," Asian Economic Policy Review, Japan Center for Economic Research, vol. 5(2), pages 249-276, December.
- 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.
- Hans Genberg, 2009. "Currency Internationalisation: Analytical and Policy Issues," Working Papers 312009, Hong Kong Institute for Monetary Research.
- Arvind Subramanian, 2011. "Renminbi Rules: The Conditional Imminence of the Reserve Currency Transition," Working Paper Series WP11-14, Peterson Institute for International Economics.
- Schenk,Catherine R., 2013.
"The Decline of Sterling,"
Cambridge University Press, number 9781107612990, November.
- Dobson, Wendy & Masson, Paul R., 2009.
"Will the renminbi become a world currency?,"
China Economic Review,
Elsevier, vol. 20(1), pages 124-135, March.
- McKinnon, Ronald I., 1979. "Money in International Exchange: The Convertible Currency System," OUP Catalogue, Oxford University Press, number 9780195024098, December.
- Linda S. Goldberg, 2010. "Is the international role of the dollar changing?," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 16(Jan).
- Black, Stanley W., 1991. "Transactions costs and vehicle currencies," Journal of International Money and Finance, Elsevier, vol. 10(4), pages 512-526, December.
- Barry Eichengreen, 2005. "Sterling's Past, Dollar's Future: Historical Perspectives on Reserve Currency Competition," NBER Working Papers 11336, National Bureau of Economic Research, Inc.
- Kenneth Rogoff, 1998. "Blessing or curse? Foreign and underground demand for euro notes," Economic Policy, CEPR;CES;MSH, vol. 13(26), pages 261-303, 04.
- Dominguez, Kathryn M & Frankel, Jeffrey A, 1993. "Does Foreign-Exchange Intervention Matter? The Portfolio Effect," American Economic Review, American Economic Association, vol. 83(5), pages 1356-69, December.
- Arvind Subramanian, 2011. "Eclipse: Living in the Shadow of China's Economic Dominance," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 6062.
- Black, Stanley W., 1985. "International money and international monetary arrangements," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 22, pages 1153-1193 Elsevier.
- Barry, Eichengreen, 2011. "The renminbi as an international currency," Journal of Policy Modeling, Elsevier, vol. 33(5), pages 723-730, September.
When requesting a correction, please mention this item's handle: RePEc:ris:integr:0576. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jong-Eun Lee)
If references are entirely missing, you can add them using this form.