IDEAS home Printed from https://ideas.repec.org/p/eab/financ/23972.html
   My bibliography  Save this paper

How Far Can Renminbi Internationalization Go?

Author

Listed:
  • Yu Yongding

    (Asian Development Bank Institute (ADBI))

Abstract

Since 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 while a contributing factor is the sheer size of the People’s Republic of China’s (PRC) trade and the convenience of using the renminbi for transaction settlements, exchange rate arbitrage and interest rate arbitrage matter also. Profits from arbitrages are the major driving forces of, but do not constitute a sustainable basis for, internationalization. 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. Macroeconomic stability has to be achieved; the high ratio of financial leverage should be reduced; a rational and flexible interest rate structure must be created; and risk management capacity across industries should be established. Most importantly, the PRC must make the renminbi exchange rate flexible to reflect demand for and supply of foreign exchange in the market. The renminbi can and will become a major international currency eventually, but the road to internationalization is bound to be long and bumpy.

Suggested Citation

  • Yu Yongding, 2014. "How Far Can Renminbi Internationalization Go?," Finance Working Papers 23972, East Asian Bureau of Economic Research.
  • Handle: RePEc:eab:financ:23972
    as

    Download full text from publisher

    File URL: http://www.eaber.org/node/23972
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    renminbi internationalization; renminbi trade settlement scheme; renminbi trade settlement; exchange rate and interest rate arbitrage;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eab:financ:23972. 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: . General contact details of provider: https://edirc.repec.org/data/eaberau.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Shiro Armstrong (email available below). General contact details of provider: https://edirc.repec.org/data/eaberau.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.