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How Far Can Renminbi Internationalization Go?


  • Yongding, Yu

    (Asian Development Bank Institute)


Since the formal launch of the renminbi trade settlement scheme in 2009, renminbi internationalization has made impressive inroads. The progress in renminbi trade settlement is especially impressive. However, Hong Kong, China’s offshore renminbi deposits failed to make significant progress as expected. The question of how far renminbi internationalization can go has become a common concern in the international financial community. This paper argues that the sheer size of the People’s Republic of China’s (PRC) trade and the convenience of using the renminbi for transaction settlements is one contributing factor, but that exchange rate arbitrage and interest rate arbitrage matter also. As well, a fundamental constraint for renminbi internationalization is the PRC’s capital controls. Before fully opening up its capital account and making the renminbi freely convertible, however, the PRC needs first to put its own house in order, most importantly making the renminbi exchange rate flexible. While the renminbi can and will become a major international currency eventually, the road to internationalization is bound to be long and bumpy.

Suggested Citation

  • Yongding, Yu, 2014. "How Far Can Renminbi Internationalization Go?," ADBI Working Papers 461, Asian Development Bank Institute.
  • Handle: RePEc:ris:adbiwp:0461

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    References listed on IDEAS

    1. Goldberg, Linda S. & Tille, Cédric, 2008. "Vehicle currency use in international trade," Journal of International Economics, Elsevier, vol. 76(2), pages 177-192, December.
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    3. Friberg, Richard & Wilander, Fredrik, 2007. "Price Setting Transactions and the Role of Denominating Currency in FX Markets," Working Paper Series 201, Sveriges Riksbank (Central Bank of Sweden).
    4. Jonathan David Ostry & Atish R. Ghosh & Karl F Habermeier & Marcos Chamon & Mahvash S Qureshi & Dennis B. S. Reinhardt, 2010. "Capital Inflows; The Role of Controls," IMF Staff Position Notes 2010/04, International Monetary Fund.
    5. Grassman, Sven, 1973. "A fundamental symmetry in international payment patterns," Journal of International Economics, Elsevier, vol. 3(2), pages 105-116, May.
    6. Ostry, Jonathan D. & Ghosh, Atish R. & Chamon, Marcos & Qureshi, Mahvash S., 2012. "Tools for managing financial-stability risks from capital inflows," Journal of International Economics, Elsevier, vol. 88(2), pages 407-421.
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    More about this item


    renminbi; trade settlement; capital account liberalization; capital controls; store of value;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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