Issues for Renminbi Internationalization: An Overview

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Asian Development Bank InstituteThe Working Paper series is a continuation of the formerly named Discussion Paper series; the numbering of the papers continued without interruption or change. ADBI's working papers reflect initial ideas on a topic and are posted online for discussion. ADBI encourages readers to post their comments on the main page for each working paper (given in the citation below). Some working papers may develop into other forms of publication. The views expressed in this paper are the views of the author and do not necessarily reflect the views or policies of ADBI, the ADB, its Board of Directors, or the governments they represent. ADBI does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequences of their use. Terminology used may not necessarily be consistent with ADB official terms.Asian Development Bank Institute Kasumigaseki Building 8F 3-2-5 Kasumigaseki, Chiyoda-ku Tokyo 100-6008, Japan AbstractThe growing weight of the People's Republic of China (PRC) in the world economy, measured by gross domestic product (GDP) and trade volume, has intensified debate on the potential international role of its currency-the renminbi (RMB). This paper provides an overview of RMB internationalization issues. Reviewing the current state of RMB internationalization, the paper finds that much progress has been made on RMB settlements for trade involving the PRC and on RMB-denominated bond issuance in Hong Kong, China, but that RMB internationalization is still limited due to capital account controls. The paper argues that a high degree of RMB internationalization requires significant capital account liberalization-supported by financial market liberalization including market-determined interest rates, and by effective financial regulation and supervision-which in turn would call for greater exchange rate flexibility so that the People's Bank of China (PBOC) can enjoy monetary policy autonomy. This, however, would pose a challenge for PRC authorities as hasty capital account liberalization could expose PRC financial markets to the risk of crisis. The paper also emphasizes the importance of institutional reforms-such as making the PBOC independent from political processes, improving the judicial system to implement rule of law, raising transparency and accountability of policy making, and democratizing the political regime-to make the RMB a truly international reserv...

10.5937/industrija42-6410 = To be or renminbi: Trend in the evolution of the international monetary system

“…Obviously, renminbi has long been accepted as the settlement currency by non-residents in the region, especially neighbouring countries like Laos, Mongolia, Myanmar, Nepal, N. Korea and Vietnam [Cohen, 2014]. 4 Initially, promoting renminbi as international unit of account and means of trade settlement comprised ASEAN members, Hong Kong-and Macau-China, tied to five mainland cities and 20 provinces in People's Republic of China (PRC), albeit with trade finance heavily skewed towards import settlement in foreigners' anticipation of the safe-bet revaluation of yuan [Eichengreen-Kawai, 2014]. In parallel, offshore renminbi accounts soared from a mere 1,1% of total deposits in Hong Kong in 2009 to almost 11% in early 2014.…”

“…worth hundreds of billions of US$ with its opposite numbers across the globe, thereby promoting trade finance as well as short term reserve currency role of renminbi and -weather permitting-also saving super hard currency (such as dollar, pound or euro) for both parties. On a top of it, PBC has also signed 4 direct trading arrangements (which are not involving 'greenback' at all) with Malaysia (2010), Russian Federation (2010), Japan (2011, effective 2012) and Australia (2013) [Eichengreen-Kawai, 2014], [Volz, 2014]. These schemes are designating a medium run FX reserve currency role for the renminbi in those countries.…”

“…[Eichengreen-Kawai, 2014]. Famous "dim-sum" bond market also picked up from 2010 owing to several huge issues by such prestigious names like HSBC, Caterpillar, Volkswagen and McDonalds.…”

“…Evenhandedness, reliability, more precisely, institutionalised reassurance that there are lawfully imposed limits to arbitrary (re)actions by the currency issuer are of utmost importance for global acceptance of renminbi as an international store of value. This implies not that PRC has no choice but to move to fullblooded electoral democracy in order to claim the leading international currency status; nevertheless, reinforcing transparent and politically independent judiciary system when it comes to regulating financial industry is an absolute imperative, in itself most likely associated with fairly mature civil society of western provenance [Eichengreen-Kawai, 2014]. For example, back in 1970s when Japanese yen was considered potential contestant for the global currency throne, Japan had even tighter capital controls and weaker structural characteristics than PRC today, but on the other hand -unlike China-had already developed a fully fledged democracy with trustworthy institutions and credible legal system [McDowell, 2013], [Subacchi, 2013].…”

“…However, since there's no global political consensus for such increase of the 'paper gold' at the expense of decrease in conventional international currencies, PRC has kept the interest in claiming the slot within SDR's composition formula. Alas, as uttered by Eichengreen and Kawai (2014), it is a bit of a 'chicken and egg problem', since formal prerequisite for a currency to enter SDR is its wide acceptance in international trade and finance, which would in turn flourish should it be admitted as an SDR ingredient. In a nutshell, SDR in its present shape and form cannot stabilise the international monetary system, while there's momentarily no political will for either inclusion of renminbi in the SDR basket, nor for large scale retraction of sovereign global currencies and their substitution with new SDR issues.…”