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The Renminbi's Role in the Global Monetary System

  • Prasad, Eswar

    ()

    (Cornell University)

  • Ye, Lei (Sandy)

    (Cornell University)

We analyze three related but distinct concepts concerning the renminbi's role in the global monetary system: (i) "internationalization" of the currency; (ii) currency convertibility; and (iii) reserve currency status. Their sequencing in relation to other policy goals such as financial sector reforms and exchange rate flexibility will affect their benefit-risk tradeoffs. We describe the measures taken and progress attained in each of these areas, and discuss the implications of these changes for the balance and sustainability of China's own economic development as well as the associated implications for the global monetary system. While China is actively promoting the internationalization of its currency, it is a long way from attaining full convertibility or meeting other prerequisites for achieving reserve currency status. Ultimately, China will proceed with capital account convertibility in its own controlled and gradual manner, with the goal being an open capital account but with significant administrative and other "soft" controls. The renminbi will play an increasingly important role in the international monetary system but is unlikely to displace the U.S. dollar anytime soon.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6335.

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Length: 106 pages
Date of creation: Feb 2012
Date of revision:
Publication status: published in: Proceedings of the 2011 Asia Economic Policy Conference, Federal Reserve Bank of San Francisco, 2011, 127-197
Handle: RePEc:iza:izadps:dp6335
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  1. Chamon, Marcos & Prasad, Eswar, 2007. "Why Are Saving Rates of Urban Households in China Rising?," IZA Discussion Papers 3191, Institute for the Study of Labor (IZA).
  2. Faisal Ahmed & Shengzu Wang & Isabelle Mateos y Lago & Samar Maziad & Stephanie Segal & Pascal Farahmand & Udaibir S. Das, 2011. "Internationalization of Emerging Market Currencies; A Balance Between Risks and Rewards," IMF Staff Discussion Notes 11/17, International Monetary Fund.
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  8. Eswar S. Prasad, 2011. "Role reversal in global finance," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 339-390.
  9. Olaf Stier & Kerstin Bernoth & Alexander Fisher, 2010. "Internationalization of the Chinese Renminbi: An Opportunity for China," Weekly Report, DIW Berlin, German Institute for Economic Research, vol. 6(17), pages 126-132.
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  11. Kai Liu & Marcos Chamon & Eswar Prasad, 2010. "Income Uncertainty and Household Savings in China," IMF Working Papers 10/289, International Monetary Fund.
  12. Li Jing, 2007. "The Rise of the Renminbi in Asia: Cost-Benefit Analysis and Road Map," Chinese Economy, M.E. Sharpe, Inc., vol. 40(4), pages 29-43, July.
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  17. Xiaoli Chen & Yin-Wong Cheung, 2011. "Renminbi Going Global," Working Papers 082011, Hong Kong Institute for Monetary Research.
  18. Barry Eichengreen & Marc Flandreau, 2010. "The Federal Reserve, the Bank of England and the rise of the dollar as an international currency, 1914-39," BIS Working Papers 328, Bank for International Settlements.
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  21. Barry, Eichengreen, 2011. "The renminbi as an international currency," Journal of Policy Modeling, Elsevier, vol. 33(5), pages 723-730, September.
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