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The Renminbi's Role in the Global Monetary System

Author Info

  • 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.

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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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Keywords: international monetary system; reserve currency; capital account liberalization; convertibility; exchange rate flexibility;

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  • F3 - International Economics - - International Finance

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Cited by:

  1. 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.
  2. Chang Shu & Dong He & Xiaoqiang Cheng, 2014. "One currency, two markets: the renminbi’s growing influence in Asia-Pacific," BIS Working Papers 446, Bank for International Settlements.
  3. Volz, Ulrich, 2013. "RMB internationalisation and currency co-operation in East Asia," Working Papers 125, University of Leipzig, Faculty of Economics and Management Science.
  4. Menzie Chinn, 2015. "Emerging Market Economies and the Next Reserve Currencies," Open Economies Review, Springer, vol. 26(1), pages 155-174, February.
  5. Reuven Glick & Michael M. Hutchison, 2013. "China’s financial linkages with Asia and the global financial crisis," Working Paper Series 2013-12, Federal Reserve Bank of San Francisco.
  6. 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.
  7. Cruz, Prince Christian & Gao, Yuning & Song, Lei Lei, 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.
  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 Group Munich.
  9. 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.

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