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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. André Sapir & Jean Pisani-Ferry, 2011. "Global Currencies for Tomorrow: A European Perspective," ULB Institutional Repository 2013/174278, ULB -- Universite Libre de Bruxelles.
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