China's Long March to Dismantling the Financial Great Wall: RMB Internationalization and Macroprudential Policy

Book chapter in "Systemic Risk, Institutional Design, and the Regulation of Financial Markets" (Anita Anand ed., Oxford University Press, 2016)

42 Pages Posted: 14 Feb 2017 Last revised: 22 Apr 2017

See all articles by Weitseng Chen

Weitseng Chen

National University of Singapore (NUS) - Faculty of Law; Center for Asian Legal Studies (CALS)

Date Written: February 13, 2016

Abstract

This essay argues that the RMB internationalization scheme has wrongly pitched itself as an international project rather than a domestic one. The procyclical nature of the RMB internationalization scheme is at odds with macroprudential thinking, which aims to prevent systemic risks. Considering similar systemic risks inherent in China’s financial and banking systems as well as the shadow banking sector, the RMB scheme would not succeed without improving the capacity of various domestic financial institutions. Overemphasis on its global outcomes distorts the sequence of reforms necessary for a successful scheme and is likely to destabilize China’s domestic banking and financial sectors, where systemic risk exists. With a realigned focus, however, the RMB scheme could serve to inject fresh dynamics into ongoing reforms by introducing a host of macroprudential policies.

Keywords: Macroprudential policy, RMB internationalization, Chinese yuan, shadow banking, China, banking law, finance law, capital controls

Suggested Citation

Chen, Weitseng, China's Long March to Dismantling the Financial Great Wall: RMB Internationalization and Macroprudential Policy (February 13, 2016). Book chapter in "Systemic Risk, Institutional Design, and the Regulation of Financial Markets" (Anita Anand ed., Oxford University Press, 2016), Available at SSRN: https://ssrn.com/abstract=2916056

Weitseng Chen (Contact Author)

National University of Singapore (NUS) - Faculty of Law ( email )

469G Bukit Timah Road
Eu Tong Sen Building
Singapore, 259776
Singapore

Center for Asian Legal Studies (CALS) ( email )

1E Kent Ridge Road
NUHS Tower Block Level 7
Singapore, 119228
Singapore

HOME PAGE: http://law.nus.edu.sg/cals/

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