The Future of International Liquidity and the Role of China

Alan Taylor

No 9305, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper analyzes the consequences of the internationalization of the Chinese renminbi for the global monetary system and its possible ascension to reserve currency status. In an unstable and financially integrated world, governments? precautionary demand for reserve assets is likely to increase. But the world then risks a third crisis of the global reserve system, another re-run of the Triffin paradox, with an ever-growing emerging-world insurance demand loaded onto a small group of ever more strained net debt suppliers. Two ways to avoid this outcome would entail either expanding the supply of credible reserve liquidity to include some large emerging-market providers, or finding ways to manage emerging-market risks so as to moderate the perceived need for insurance, and China would have to loom large in both solutions.

Keywords: China; International reserves; Precautionary saving; Renminbi; Reserve currency; Triffin paradox (search for similar items in EconPapers)
JEL-codes: F01 F02 F33 (search for similar items in EconPapers)
Date: 2013-01
New Economics Papers: this item is included in nep-dev, nep-mon and nep-tra
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Citations: View citations in EconPapers (6)

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Journal Article: The Future of International Liquidity and the Role of China (2013)
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