The Renminbi and Systemic Risk

Chris Brummer

Georgetown University Law Center; The Institute of International Economic Law (IIEL); Atlantic Council; Milken Institute Center for Financial Markets

February 15, 2017

The internationalization of China’s currency, the renminbi (“RMB”), is arising in ways that depart considerably from historical precedent and what “law and macroeconomic” theory would predict. Instead of waiting for international markets for its currency to evolve organically, the Chinese government has undertaken a quasi-mercantilist strategy designed to promote the currency and its own national RMB-based infrastructure. This strategy has emphasized tightly managed capital account deregulation over prudential reforms and robust market supervision, and incentivizes foreign jurisdictions to compete for RMB-based transactions.

China’s monetary strategy introduces novel systemic risks to the global financial system, including a potentially inadequate provision of renminbi liquidity, a regulatory race to the bottom between offshore RMB-hubs, and significant transmission belts of financial risk to even non-renminbi markets. To mitigate these risks, this Article outlines a policy recipe of stronger macroprudential oversight, transparent countercyclical capital account reforms and credible commitments to refrain from competitive currency devaluations.

Number of Pages in PDF File: 65

Keywords: renminbi, systemic risk, currency manipulation, financial regulation, central banking

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Date posted: February 16, 2017  

Suggested Citation

Brummer, Chris, The Renminbi and Systemic Risk (February 15, 2017). Available at SSRN: https://ssrn.com/abstract=2918257

Contact Information

Christopher J. Brummer (Contact Author)
Georgetown University Law Center ( email )
Washington, DC 20057
United States
HOME PAGE: http://https://www.law.georgetown.edu/faculty/brummer-chris.cfm
The Institute of International Economic Law (IIEL) ( email )
Georgetown University Law Center
600 New Jersey Avenue, NW
Washington, DC 20001
United States
HOME PAGE: http://iielaw.org/member/chris-brummer-2/
Atlantic Council ( email )
1101 15th Street, NW
11th Floor
DC 20005
United States
HOME PAGE: http://www.atlanticcouncil.org/about/experts/list/chris-brummer
Milken Institute Center for Financial Markets ( email )
1250 Fourth Street
Santa Monica, CA 90401
United States
HOME PAGE: http://www.milkeninstitute.org/about/our-team/view/70
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