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The Renminbi's Role in the Global Monetary System

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  • Prasad, Eswar

    (Cornell University)

  • Ye, Lei (Sandy)

    (Cornell University)

Abstract

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.

Suggested Citation

  • Prasad, Eswar & Ye, Lei (Sandy), 2012. "The Renminbi's Role in the Global Monetary System," IZA Discussion Papers 6335, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp6335
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    Cited by:

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    2. Shu, Chang & He, Dong & Cheng, Xiaoqiang, 2015. "One currency, two markets: the renminbi's growing influence in Asia-Pacific," China Economic Review, Elsevier, vol. 33(C), pages 163-178.
    3. Steven Wei Ho & Ji Zhang & Hao Zhou, 2018. "Hot Money and Quantitative Easing: The Spillover Effects of U.S. Monetary Policy on the Chinese Economy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 50(7), pages 1543-1569, October.
    4. Benjamin J. Cohen & Tabitha M. Benney, 2014. "What does the international currency system really look like?," Review of International Political Economy, Taylor & Francis Journals, vol. 21(5), pages 1017-1041, October.
    5. Ronald McKinnon & Gunther Schnabl, 2014. "China's Exchange Rate and Financial Repression: The Conflicted Emergence of the RMB as an International Currency," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 22(3), pages 1-35, July.
    6. Prince Christian Cruz & Yuning Gao & Lei Lei Song, 2014. "The People’s Republic of China’s Financial Markets: Are They Deep and Liquid Enough for Renminbi Internationalization?," ADBI Working Papers 477, Asian Development Bank Institute.
    7. Glick, Reuven & Hutchison, Michael, 2013. "China's financial linkages with Asia and the global financial crisis," Journal of International Money and Finance, Elsevier, vol. 39(C), pages 186-206.
    8. Ronald Ian McKinnon & Gunther Schnabl, 2014. "China's Exchange Rate and Financial Repression: The Conflicted Emergence of the Renminbi as an International Currency," CESifo Working Paper Series 4649, CESifo.
    9. Robert R. Bianchi, 2013. "China–Middle East Relations in Light of Obama’s Pivot to the Pacific," China Report, , vol. 49(1), pages 103-118, February.
    10. 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.
    11. Kristina Spantig, 2015. "International monetary policy spillovers—can the RMB and the euro challenge the hegemony of the US dollar?," Asia Europe Journal, Springer, vol. 13(4), pages 459-478, December.
    12. Ulrich Volz, 2014. "RMB Internationalisation and Currency Cooperation in East Asia," Financial and Monetary Policy Studies, in: Frank Rövekamp & Hanns Günther Hilpert (ed.), Currency Cooperation in East Asia, edition 127, pages 57-81, Springer.
    13. Menzie Chinn, 2015. "Emerging Market Economies and the Next Reserve Currencies," Open Economies Review, Springer, vol. 26(1), pages 155-174, February.
    14. Daniel Poon, 2014. "China’s Development Trajectory: A Strategic Opening for Industrial Policy in the South," UNCTAD Discussion Papers 218, United Nations Conference on Trade and Development.
    15. Wan Sallha Yusoff & Mohd Fairuz Md. Salleh & Azlina Ahmad & Norida Basnan, 2016. "Financial Hegemony, Diversification Strategies and the Firm Value of Top 30 FTSE Companies in Malaysia," Asian Social Science, Canadian Center of Science and Education, vol. 12(3), pages 1-14, March.

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    More about this item

    Keywords

    international monetary system; reserve currency; capital account liberalization; convertibility; exchange rate flexibility;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance

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