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Issues for Renminbi Internationalization : An Overview

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  • Barry Eichengreen

    (Asian Development Bank Institute (ADBI))

  • Masahiro Kawai

Abstract

The growing weight of the People’s Republic of China (PRC) in the world economy, measured by gross domestic product (GDP) and trade volume, has intensified debate on the potential international role of its currency—the renminbi (RMB). This paper provides an overview of RMB internationalization issues. Reviewing the current state of RMB internationalization, the paper finds that much progress has been made on RMB settlements for trade involving the PRC and on RMB-denominated bond issuance in Hong Kong, China, but that RMB internationalization is still limited due to capital account controls. The paper argues that a high degree of RMB internationalization requires significant capital account liberalization—supported by financial market liberalization including market-determined interest rates, and by effective financial regulation and supervision—which in turn would call for greater exchange rate flexibility so that the People’s Bank of China (PBOC) can enjoy monetary policy autonomy. This, however, would pose a challenge for PRC authorities as hasty capital account liberalization could expose PRC financial markets to the risk of crisis. The paper also emphasizes the importance of institutional reforms—such as making the PBOC independent from political processes, improving the judicial system to implement rule of law, raising transparency and accountability of policy making, and democratizing the political regime—to make the RMB a truly international reserve currency. Finally, the paper explores the implications of RMB internationalization for the international monetary system.

Suggested Citation

  • Barry Eichengreen & Masahiro Kawai, 2014. "Issues for Renminbi Internationalization : An Overview," Finance Working Papers 23961, East Asian Bureau of Economic Research.
  • Handle: RePEc:eab:financ:23961
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    1. Eswar S. Prasad & Raghuram G. Rajan, 2008. "A Pragmatic Approach to Capital Account Liberalization," Journal of Economic Perspectives, American Economic Association, vol. 22(3), pages 149-172, Summer.
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    5. Maurice Obstfeld & Kenneth S. Rogoff, 2009. "Global imbalances and the financial crisis: products of common causes," Proceedings, Federal Reserve Bank of San Francisco, issue Oct, pages 131-172.
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    Cited by:

    1. Gunther Schnabl & Kristina Spantig, 2016. "(De)Stabilizing Exchange Rate Strategies In East Asian Monetary And Economic Integration," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 61(02), pages 1-24, June.
    2. Hyoung-kyu Chey & Geun-Young Kim & Dong Hyun Lee, 2016. "Who Are the First Users of a Newly-Emerging International Currency? A Demand-Side Study of Chinese Renminbi Internationalization," Working Papers 2016-19, Economic Research Institute, Bank of Korea.
    3. Löchel, H. & Packham, N. & Walisch, F., 2016. "Determinants of the onshore and offshore Chinese government yield curves," Pacific-Basin Finance Journal, Elsevier, vol. 36(C), pages 77-93.
    4. Lauren A. Johnston, 2019. "The Belt and Road Initiative: What is in it for China?," Asia and the Pacific Policy Studies, Wiley Blackwell, vol. 6(1), pages 40-58, January.
    5. Batten, Jonathan A. & Szilagyi, Peter G., 2016. "The internationalisation of the RMB: New starts, jumps and tipping points," Emerging Markets Review, Elsevier, vol. 28(C), pages 221-238.
    6. He, Dong & Yu, Xiangrong, 2016. "Network effects in currency internationalisation: Insights from BIS triennial surveys and implications for the renminbi," Journal of International Money and Finance, Elsevier, vol. 68(C), pages 203-229.
    7. Frankel, Jeffrey, 2016. "Globalization and Chinese Growth: Ends of Trends?," Working Paper Series 16-029, Harvard University, John F. Kennedy School of Government.
    8. Barbara Fritz & Laurissa Mühlich, 2019. "Regional Financial Arrangements in the Global Financial Safety Net: The Arab Monetary Fund and the Eurasian Fund for Stabilization and Development," Development and Change, International Institute of Social Studies, vol. 50(1), pages 96-121, January.
    9. Wayne Swan, 2015. "Financing Sustainable Development: What Can We Learn from the Australian Experience of Reform?," MPDD Working Paper Series WP/15/11, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).
    10. Hyoung-kyu Chey, 2014. "A Demand-Side Analysis of Renminbi Internationalisation: The Renminbi in South Korea," GRIPS Discussion Papers 14-02, National Graduate Institute for Policy Studies.
    11. Angella Faith LAPUKENI & SATO Kiyotaka, 2019. "Invoice Currency Choice in Malawi's Imports from Asia: Is there any evidence of Renminbi Internationalization?," Discussion papers 19060, Research Institute of Economy, Trade and Industry (RIETI).
    12. SATO Kiyotaka & SHIMIZU Junko, 2016. "The International Use of the Renminbi: Evidence from Japanese firm-level data," Discussion papers 16033, Research Institute of Economy, Trade and Industry (RIETI).
    13. Kristina Spantig, 2015. "International monetary policy spillovers—can the RMB and the euro challenge the hegemony of the US dollar?," Asia Europe Journal, Springer, vol. 13(4), pages 459-478, December.
    14. Sato, Kiyotaka & Shimizu, Junko, 2018. "International use of the renminbi for invoice currency and exchange risk management: Evidence from the Japanese firm-level data," The North American Journal of Economics and Finance, Elsevier, vol. 46(C), pages 286-301.
    15. 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.
    16. Wayne Swan, 2015. "Financing sustainable development – What can we learn from the Australian experience of reform?," Asia-Pacific Development Journal, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), vol. 22(2), pages 135-164, December.

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    More about this item

    Keywords

    renminbi (RMB); internationalization; PRC; China; capital account internationalization; financial market liberalization; monetary policy autonomy;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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