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Issues for Renminbi Internationalization: An Overview

Author

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  • Barry Eichengreen

    (Asian Development Bank Institute)

  • Masahiro Kawai

    (Asian Development Bank Institute)

Abstract

This paper provides an overview of the potential international role of the renminbi (RMB). Reviewing the current state, the paper finds that much progress has been made on RMB settlements for trade involving the People’s Republic of China (PRC) and on RMB-denominated bond issuance in Hong Kong, China, but that RMB internationalization is still limited due to capital account controls. It argues that a high degree of RMB internationalization requires significant capital account liberalization, which in turn would call for greater exchange rate flexibility so that the central bank can enjoy monetary policy autonomy. This, however, would pose a challenge for PRC authorities as hasty capital account liberalization could expose its financial markets to the risk of crisis. The paper also emphasizes the importance of institutional reforms to make the RMB a truly international reserve currency.

Suggested Citation

  • Barry Eichengreen & Masahiro Kawai, 2014. "Issues for Renminbi Internationalization: An Overview," ADBI Working Papers 454, Asian Development Bank Institute.
    • Handle: RePEc:ris:adbiwp:0454
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    References listed on IDEAS

    as
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    Keywords

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    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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