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Pros and Cons of International Use of the RMB for China

In: Currency Internationalization: Global Experiences and Implications for the Renminbi

Author

Listed:
  • Wen Hai
  • Hongxin Yao

Abstract

Along with economic globalization and international financial integration, currency internationalization has been an important issue in the study of international finance. Even though there is still no consistent definition for the internationalization of a currency, the various definitions actually share some common points. Tavlas (1998) and Hartman (2002) argued that if a currency is received by the institutions or individuals of other countries, and it functions as the medium of exchange, unit of account and store of value, then it can be considered as an international currency. Since the 1990s, the reputation of the Chinese renminbi (RMB) in the international market has given greatly. Its influence has extended to neighboring countries such that the RMB is widely accepted as the settlement currency in border trades with Vietnam, Thailand, Burma, Cambodia, North Korea, Mongolia, Russia, Pakistan and Nepal. The Philippines, South Korea, Cambodia, Malaysia and Nepal have already accepted the RMB as their foreign exchange reserve. Bergsten (1975) analyzed both the internal and external economic conditions of an international currency, as they affected the US dollar. The internal conditions include robust economic growth, price stability, comparative advantages of international scale, and highly developed financial markets. The external conditions include foreign confidence in the stability of the convertibility regime, as well as the maintenance of a reasonable mobility ratio and the healthy balance of payments. Based on these factors, the achievement of the international status

Suggested Citation

  • Wen Hai & Hongxin Yao, 2010. "Pros and Cons of International Use of the RMB for China," Palgrave Macmillan Books, in: Wensheng Peng & Chang Shu (ed.), Currency Internationalization: Global Experiences and Implications for the Renminbi, chapter 6, pages 139-166, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-24578-5_6
    DOI: 10.1057/9780230245785_6
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    Cited by:

    1. Ho, Kin-Yip & Shi, Yanlin & Zhang, Zhaoyong, 2018. "Public information arrival, price discovery and dynamic correlations in the Chinese renminbi markets," The North American Journal of Economics and Finance, Elsevier, vol. 46(C), pages 168-186.
    2. McCauley, Robert N., 2015. "Does the US dollar confer an exorbitant privilege?," Journal of International Money and Finance, Elsevier, vol. 57(C), pages 1-14.
    3. 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.
    4. Benjamin Cohen, 2012. "The Benefits and Costs of an International Currency: Getting the Calculus Right," Open Economies Review, Springer, vol. 23(1), pages 13-31, February.

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