The People's Republic of China's Financial Markets: Are They Deep and Liquid Enough for Renminbi Internationalization?

37 Pages Posted: 2 May 2014  

Prince Christian Cruz

Asian Development Bank

Yuning Gao

Tsinghua University; Tsinghua University - School of Public Policy and Management

Lei Lei Song

Asian Development Bank

Date Written: May 1, 2014

Abstract

Domestic financial market development is a key determinant of a currency’s international status, and financial depth and market liquidity are two essential attributes for an international currency. This paper discusses the status of the People’s Republic of China’s (PRC) financial markets and their depth and liquidity conditions. The paper also compares the PRC’s financial markets with those in developed and emerging economies, contemporaneously and historically. The paper finds that the PRC’s financial markets are not as deep and liquid as those in developed economies, and are much less so than those with international currencies. To support the internationalization of the renminbi, the PRC needs to remove several major obstacles to deepen its financial markets and improve their liquidity conditions.

Keywords: RMB internationalization; financial depth; bond markets; stock market; money markets

JEL Classification: E4, E5

Suggested Citation

Cruz, Prince Christian and Gao, Yuning and Song, Lei Lei, The People's Republic of China's Financial Markets: Are They Deep and Liquid Enough for Renminbi Internationalization? (May 1, 2014). ADBI Working Paper 477. Available at SSRN: https://ssrn.com/abstract=2431616 or http://dx.doi.org/10.2139/ssrn.2431616

Prince Christian Cruz

Asian Development Bank ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

Yuning Gao

Tsinghua University ( email )

Beijing, 100084
China

Tsinghua University - School of Public Policy and Management ( email )

Beijing, 100084
China
+86-10-62772927 (Phone)

HOME PAGE: http://www.sppm.tsinghua.edu.cn/english/FacultyAndStaff/FullTimeFaculty/F/26efe48945a0f8030145f4c8dc

Lei Lei Song (Contact Author)

Asian Development Bank ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

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