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How Far Can Renminbi Internationalization Go?

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  • Yongding, Yu

    (Asian Development Bank Institute)

Abstract

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

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    More about this item

    Keywords

    renminbi; trade settlement; capital account liberalization; capital controls; store of value;
    All these keywords.

    JEL classification:

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

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    This paper has been announced in the following NEP Reports:

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