Issues for Renminbi Internationalization: An Overview

22 Pages Posted: 21 Jan 2014

See all articles by Barry Eichengreen

Barry Eichengreen

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

Masahiro Kawai

Asian Development Bank Institute

Date Written: January 21, 2014

Abstract

This paper provides an overview of the potential international role of the renminbi (RMB). Reviewing the current state, the paper finds that much progress has been made on RMB settlements for trade involving the People’s Republic of China (PRC) and on RMB-denominated bond issuance in Hong Kong, China, but that RMB internationalization is still limited due to capital account controls. It argues that a high degree of RMB internationalization requires significant capital account liberalization, which in turn would call for greater exchange rate flexibility so that the central bank can enjoy monetary policy autonomy. This, however, would pose a challenge for PRC authorities as hasty capital account liberalization could expose its financial markets to the risk of crisis. The paper also emphasizes the importance of institutional reforms to make the RMB a truly international reserve currency.

Keywords: renminbi, yuan, international monetary policy, currency internationalization, foreign exchange, capital account liberalization, financial market

JEL Classification: F31, F32, F33, F41

Suggested Citation

Eichengreen, Barry and Kawai, Masahiro, Issues for Renminbi Internationalization: An Overview (January 21, 2014). ADBI Working Paper 454. Available at SSRN: https://ssrn.com/abstract=2382420 or http://dx.doi.org/10.2139/ssrn.2382420

Barry Eichengreen (Contact Author)

University of California, Berkeley ( email )

310 Barrows Hall
Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Masahiro Kawai

Asian Development Bank Institute ( email )

Kasumigaseki Building 8F 3-2-5
Kasumigaseki Chiyoda-ku
Tokyo, 100-6008
Japan

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