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Internationalization of the Renminbi: The Role of Trade Settlement

Author

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  • Joseph E. Gagnon

    () (Peterson Institute for International Economics)

  • Kent Troutman

    () (Peterson Institute for International Economics)

Abstract

The renminbi (RMB) is not yet an international currency that could challenge the position of the dollar or the euro, but it is heading in that direction. Chinese officials support the limited goal of increasing usage of the RMB in international transactions, but they do not publicly advocate full reserve-currency status and free convertibility that such status would require. Yet international use of the RMB is an important element of China's reform agenda. China has announced the opening of offshore RMB centers in Hong Kong, Singapore, Taipei, London, Frankfurt, Paris, and Luxembourg, to the delight of offshore investors eager to invest in the RMB, which has not depreciated significantly against the dollar since 1994 and is widely viewed as having further room for appreciation given China's strong economic fundamentals. The ability of Chinese exporters and importers to make and accept payments in RMB is helping to drive the growth of offshore RMB markets. The excess of settlements in RMB by Chinese importers over RMB settlement by Chinese exporters leads to growing volumes of RMB deposits offshore. But the RMB cannot become a true international currency until Chinese authorities drop their strict limits on capital flows between China and the rest of the world.

Suggested Citation

  • Joseph E. Gagnon & Kent Troutman, 2014. "Internationalization of the Renminbi: The Role of Trade Settlement," Policy Briefs PB14-15, Peterson Institute for International Economics.
  • Handle: RePEc:iie:pbrief:pb14-15
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    References listed on IDEAS

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    1. Goldberg, Linda S. & Tille, Cédric, 2008. "Vehicle currency use in international trade," Journal of International Economics, Elsevier, vol. 76(2), pages 177-192, December.
    2. Ka-Fai Li & Cho-Hoi Hui & Tsz-Kin Chung, 2012. "Determinants and Dynamics of Price Disparity in Onshore and Offshore Renminbi Forward Exchange Rate Markets," Working Papers 242012, Hong Kong Institute for Monetary Research.
    3. Yongding Yu, 2012. "Revisiting the Internationalization of the Yuan," Finance Working Papers 23311, East Asian Bureau of Economic Research.
    4. R. S Craig & Changchun Hua & Philip Ng & Raymond Yuen, 2013. "Development of the Renminbi Market in Hong Kong SAR; Assessing Onshore-Offshore Market Integration," IMF Working Papers 13/268, International Monetary Fund.
    5. Yu, Yongding, 2012. "Revisiting the Internationalization of the Yuan," ADBI Working Papers 366, Asian Development Bank Institute.
    6. Joseph E. Gagnon & Marc Hinterschweiger, 2011. "Flexible Exchange Rates for a Stable World Economy," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 6277.
    7. Ito, Hiro & Chinn, Menzie, 2014. "The Rise of the “Redback” and the People’s Republic of China’s Capital Account Liberalization: An Empirical Analysis of the Determinants of Invoicing Currencies," ADBI Working Papers 473, Asian Development Bank Institute.
    8. Yongding Yu, 2012. "Revisiting the Internationalization of the Yuan," Macroeconomics Working Papers 23311, East Asian Bureau of Economic Research.
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    Cited by:

    1. Funke, Michael & Shu, Chang & Cheng, Xiaoqiang & Eraslan, Sercan, 2015. "Assessing the CNH–CNY pricing differential: Role of fundamentals, contagion and policy," Journal of International Money and Finance, Elsevier, vol. 59(C), pages 245-262.
    2. Eichengreen, Barry & Flandreau, Marc & Mehl, Arnaud & Chitu, Livia, 2017. "International Currencies Past, Present, and Future: Two Views from Economic History," OUP Catalogue, Oxford University Press, number 9780190659455.
    3. Eraslan, Sercan, 2017. "Asymmetric arbitrage trading on offshore and onshore renminbi markets," Discussion Papers 13/2017, Deutsche Bundesbank.

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