Internationalizing Like China
Christopher Clayton,
Amanda Dos Santos,
Matteo Maggiori and
Jesse Schreger
No r2msa, SocArXiv from Center for Open Science
Abstract:
We empirically characterize how China is internationalizing the Renminbi by selectively opening up its domestic bond market and propose a dynamic reputation model to understand China's internationalization strategy. While previously closed to foreign investors, China has recently allowed major increases in foreign investment in its domestic bond market. China carefully controlled the entrance of foreign investors into its market, first allowing in relatively stable long-term investors like central banks before allowing in flightier investors like mutual funds. Foreign investors increasingly treat Renminbi denominated assets as a substitute for safe developed-market government bonds. Our framework explains these patterns as the result of a government strategy to build its reputation as an international currency issuer while minimizing the cost of potential capital flight as it gains credibility. We analyze optimal two-way liberalization: gradually letting more domestic capital flow abroad as foreigners increase their participation in domestic markets.
Date: 2022-03-11
New Economics Papers: this item is included in nep-ban, nep-cna, nep-fdg, nep-ifn and nep-tra
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Citations: View citations in EconPapers (5)
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Related works:
Working Paper: Internationalizing Like China (2023) 
Working Paper: Internationalizing Like China (2022) 
Working Paper: Internationalizing Like China (2022) 
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Persistent link: https://EconPapers.repec.org/RePEc:osf:socarx:r2msa
DOI: 10.31219/osf.io/r2msa
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