The Full Convertibility of Renminbi: Sequencing and Influence

Hong Kong Institute for Monetary and Financial Research (HKIMR) Research Paper WP No. 09/2002

Financial Opening and Macroeconomic Stability, eds. by S. Liu, Z Zhao, and Y Ma, Beijing: Social Sciences Documentation Publishing House, Aug 2004, in both English and Chinese

45 Pages Posted: 27 Aug 2007 Last revised: 26 Jul 2022

Date Written: April 1, 2002

Abstract

This working paper was written by Shucheng Liu ( Chinese Academy of Social Sciences), Zhijun Zhao (Chinese Academy of Social Sciences), Yue Ma (Lingnan University), Matthew S. Yiu (Hong Kong Institute for Monetary Research), Yak-yeow Kueh (Lingnan University) and Shu-ki Tsang (Hong Kong Baptist University).

This paper examines the issue of achieving full convertibility for the Chinese currency, Renminbi (RMB), and its impact on the economies of both mainland China and Hong Kong. It focuses on the sequencing of Renminbi's full convertibility, clarifying the different concepts of currency convertibility, i.e. current account convertibility, capital/financial account convertibility, and full convertibility. It also discusses the differences between removing restrictions on international transactions and removing restrictions on the exchange of foreign currencies. There still exist various extremely strict restrictions on capital/ financial account convertibility in China. There is still a long way to go before these restrictions can be removed completely. China's accession to the World Trade Organization (WTO) will surely drive the course of Renminbi's full convertibility. However, the Renminbi may not become a fully convertible currency within the five years after China's accession to the WTO. This paper comes to the conclusion that there does not exist a uniform or fixed sequence in adopting the full convertibility of a currency due to the differences between countries. At the same time, based on the common practices and basic sequence taken by most countries in the world, drawing on the experience and lessons from other countries' practice and given the fact that China is a large developing country, we also conclude that a progressive and prudent sequential process is needed for the full convertibility of Renminbi.

Keywords: convertibility of Renminbi, WTO, China, Hong Kong

JEL Classification: F31, G18, O11, O41

Suggested Citation

Submitter, Hong Kong Institute for Monetary and Financial Research, The Full Convertibility of Renminbi: Sequencing and Influence (April 1, 2002). Hong Kong Institute for Monetary and Financial Research (HKIMR) Research Paper WP No. 09/2002, Financial Opening and Macroeconomic Stability, eds. by S. Liu, Z Zhao, and Y Ma, Beijing: Social Sciences Documentation Publishing House, Aug 2004, in both English and Chinese, Available at SSRN: https://ssrn.com/abstract=1009162 or http://dx.doi.org/10.2139/ssrn.1009162

Hong Kong Institute for Monetary and Financial Research Submitter (Contact Author)

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