How Far Can Renminbi Internationalization Go?

Yu Yongding
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Yu Yongding: Asian Development Bank Institute

No 461, ADBI Working Papers from Asian Development Bank Institute

Abstract: Since the formal launch of the renminbi trade settlement scheme in 2009, renminbi internationalization has made impressive inroads. The progress in renminbi trade settlement is especially impressive. However, Hong Kong, China’s offshore renminbi deposits failed to make significant progress as expected. The question of how far renminbi internationalization can go has become a common concern in the international financial community. This paper argues that the sheer size of the People’s Republic of China’s (PRC) trade and the convenience of using the renminbi for transaction settlements is one contributing factor, but that exchange rate arbitrage and interest rate arbitrage matter also. As well, a fundamental constraint for renminbi internationalization is the PRC’s capital controls. Before fully opening up its capital account and making the renminbi freely convertible, however, the PRC needs first to put its own house in order, most importantly making the renminbi exchange rate flexible. While the renminbi can and will become a major international currency eventually, the road to internationalization is bound to be long and bumpy.

Keywords: renminbi; trade settlement; capital account liberalization; capital controls; store of value (search for similar items in EconPapers)
JEL-codes: F31 F33 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2014-02-14
New Economics Papers: this item is included in nep-int, nep-mon, nep-sea and nep-tra
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