Revisiting the Internationalization of the Yuan

28 Pages Posted: 5 Jul 2012

See all articles by Yu Yongding

Yu Yongding

Chinese Academy of Social Sciences (CASS)

Date Written: July 5, 2012

Abstract

As the world’s second largest economy, largest trading nation, and the largest foreign holder of United States (US) government bonds, the People’s Republic of China (PRC) needs a currency with international status that can match its economic status in the global economy. However, sequencing is important. Before the internationalization of the yuan can make meaningful progress, necessary conditions, such as the existence of deep and liquid financial markets, a flexible exchange rate and interest rates responsive to market conditions must be created.

The process of yuan internationalization essentially is a process of capital account liberalization. Due to the unprecedented and complex global financial crisis and the PRC’s huge imbalances, capital account liberalization has to be pursued in a cautious way. As a result, the internationalization of the yuan is bound to be a long-drawn process.

The PRC’s road map for the internationalization of the yuan is flawed with many missing links and wishful thinking. Yuan internationalization guided by the current road map may be proven counterproductive.

Keywords: yuan internationalization, revisiting internationalization yuan, prc exports

JEL Classification: F31, F33

Suggested Citation

Yongding, Yu, Revisiting the Internationalization of the Yuan (July 5, 2012). ADBI Working Paper 366, Available at SSRN: https://ssrn.com/abstract=2100941 or http://dx.doi.org/10.2139/ssrn.2100941

Yu Yongding (Contact Author)

Chinese Academy of Social Sciences (CASS)

Beijing, 100732
China

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