ADB Distinguished Lecture Renminbi Internationalization: Tempest in a Teapot?

17 Pages Posted: 4 May 2013

See all articles by Barry Eichengreen

Barry Eichengreen

University of California, Berkeley; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Date Written: March 1, 2013

Abstract

Internationalization of the renminbi is a stated goal of the Chinese government, its brief flirtation with Special Drawing Rights and an Asian Currency Unit notwithstanding. Chinese officials understand that a dollar-centric international monetary and financial system is a mixed blessing. Doing cross-border business in their own currency confers convenience value and efficiency advantages on United States (US) banks and firms. It frees them from the costs of converting currencies and hedging exchange rate exposures, something that Chinese banks and firms will enjoy only when they are similarly able to conduct international transactions in their home currency. Relying on the dollar for international liquidity and reserves lays the People’s Republic of China (PRC) open to the foibles of US policy, whose downside was made clear by the incipient liquidity shortage that followed the failure of Lehman Bros. in 2008. It exposes the PRC to the risk of capital losses on its foreign security holdings. Renminbi internationalization is part and parcel with Chinese leaders’ efforts to rebalance their economy from investment to consumption, from exports to domestic absorption, and from manufacturing to services, including financial services. This explains why Chinese policy makers have set their sights on “basic capital account convertibility” within five years and on elevating Shanghai to first-class-financial-center status within ten, at which time the renminbi will be a leading international and reserve currency.

Suggested Citation

Eichengreen, Barry, ADB Distinguished Lecture Renminbi Internationalization: Tempest in a Teapot? (March 1, 2013). Asian Development Review, Vol. 30 No. 1, pp. 148-164, 2013, Available at SSRN: https://ssrn.com/abstract=2260128 or http://dx.doi.org/10.2139/ssrn.2260128

Barry Eichengreen (Contact Author)

University of California, Berkeley ( email )

310 Barrows Hall
Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
293
Abstract Views
1,292
Rank
189,557
PlumX Metrics