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The Benefits and Costs of Renminbi Internationalization

Author

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  • Liqing Zhang
  • Kunyu Tao

Abstract

Despite the increasing recognition that the renminbi (RMB) may eventually become a key global currency, several important questions remain to be answered. This paper analyzes the benefits and costs of the RMB becoming an international currency. The benefits include reduced exchange risk, promotion of the development of the financial market, and expansion of firms in the People’s Republic of China. The costs include general costs, which complicate monetary policy and exchange rate policy, and several transitional risks. We argue that the benefits of RMB internationalization should surpass its costs, particularly in the long run, and provide comprehensive policy choices for a sustainable process of RMB internationalization

Suggested Citation

  • Liqing Zhang & Kunyu Tao, 2014. "The Benefits and Costs of Renminbi Internationalization," Finance Working Papers 24164, East Asian Bureau of Economic Research.
  • Handle: RePEc:eab:financ:24164
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    File URL: http://www.eaber.org/node/24164
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    Keywords

    RMB; renminbi internationalization; International currency; financial market; PRC; transitional risks;

    JEL classification:

    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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