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Capital Account Liberalization and the Role of the Renminbi

Author

Listed:
  • Nicholas Lardy

    () (Peterson Institute for International Economics)

  • Patrick Douglass

    () (Peterson Institute for International Economics)

Abstract

Despite an erosion of consensus on its benefits, capital account convertibility remains a long-term goal of China. This paper identifies three major preconditions for convertibility in China: a strong domestic banking system, relatively developed domestic financial markets, and an equilibrium exchange rate. The authors examine each of these in turn and find that, in significant respects, China does not yet meet any of the conditions necessary for convertibility. They then evaluate China’s progress to date on capital account liberalization, including recent efforts to promote renminbi internationalization and greater use of the renminbi in trade settlement. The paper concludes with an overview of remaining obstacles to convertibility and policy recommendations.

Suggested Citation

  • Nicholas Lardy & Patrick Douglass, 2011. "Capital Account Liberalization and the Role of the Renminbi," Working Paper Series WP11-6, Peterson Institute for International Economics.
  • Handle: RePEc:iie:wpaper:wp11-6
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    Cited by:

    1. 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.
    2. Dai, Meixing, 2011. "Motivations and strategies for a real revaluation of the Yuan," MPRA Paper 30440, University Library of Munich, Germany.
    3. Eswar Prasad & Lei Ye, 2013. "The Renminbi's Prospects as a Global Reserve Currency," Cato Journal, Cato Journal, Cato Institute, vol. 33(3), pages 563-570, Fall.
    4. Dominik A. Skopiec, 2014. "Perspektywy internacjonalizacji waluty Chin," Gospodarka Narodowa, Warsaw School of Economics, issue 1, pages 5-31.

    More about this item

    Keywords

    China; renminbi; capital account;

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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