Abstract

https://ssrn.com/abstract=2407891
 


 



China's Exchange Rate and Financial Repression: The Conflicted Emergence of the Renminbi as an International Currency


Ronald McKinnon


Stanford University, School of Humanities & Sciences, Department of Economics (Deceased); CESifo (Center for Economic Studies and Ifo Institute for Economic Research) (Deceased)

Gunther Schnabl


University of Leipzig - Institute for Economic Policy

February 21, 2014

CESifo Working Paper Series No. 4649

Abstract:     
China has been provoked into speeding renmnibi internationalization. But despite rapid growth in offshore financial markets in RMB, the Chinese authorities are essentially trapped into maintaining exchange controls — reinforced by financial repression in domestic interest rates — to avoid an avalanche of foreign capital inflows that would threaten inflation and asset price bubbles by driving nominal interest rates on RMB assets down further. Because a floating (appreciating) exchange rate could attract even more hot money inflows, the People’s Bank of China should focus on tightly stabilizing the yuan/dollar exchange rate to encourage naturally high wage increases for balancing China’s international competitiveness.

Number of Pages in PDF File: 38

Keywords: China, informal dollar standard, internationalization of renminbi, exchange rate stabilization, inflation, financial repression

JEL Classification: F150, F310, F330


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Date posted: March 13, 2014  

Suggested Citation

McKinnon, Ronald and Schnabl, Gunther, China's Exchange Rate and Financial Repression: The Conflicted Emergence of the Renminbi as an International Currency (February 21, 2014). CESifo Working Paper Series No. 4649. Available at SSRN: https://ssrn.com/abstract=2407891

Contact Information

Ronald McKinnon
Stanford University, School of Humanities & Sciences, Department of Economics (Deceased)
CESifo (Center for Economic Studies and Ifo Institute for Economic Research) (Deceased)

Gunther Schnabl (Contact Author)
University of Leipzig - Institute for Economic Policy ( email )
Institute for Economic Policy
Grimmaische Straße 12
Leipzig, 04109
Germany
HOME PAGE: http://www.wifa.uni-leipzig.de/iwp/
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