Global Implications of the Renminbiâ€™s Ascendance
This paper evaluates the prospects for the renminbiâ€™s role as an international currency and the implications for global financial markets. Although the Peopleâ€™s Republic of China (PRC) does not have either an open capital account or a flexible exchange rate, the renminbi has attained considerable traction as an international currency on account of the PRCâ€™s rising shares of global trade and gross domestic product. Through bilateral swaps that the Peopleâ€™s Bank of China has established with other countriesâ€™ central banks, the renminbi is also becoming more prominent in international finance. However, the renminbi is unlikely to become a major reserve currency in the absence of capital account convertibility, a flexible exchange rate, and better-developed financial markets. The renminbiâ€™s rising prominenceâ€”if it is accompanied by significant economic reforms within the PRCâ€”could add to the stability of Asian and global financial systems.
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