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China and Special Drawing Rights—Towards a Better International Monetary System

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  • Matthew Harrison

    (Hong Kong Institution for International Finance, K K Leung Building, University of Hong Kong, Hong Kong)

  • Geng Xiao

    (Peking University HSBC Business School, PHBS 734, Peking University, University Town, Nanshan District, Shenzhen 518055, China)

Abstract

China and the international monetary system need each other. The international monetary system is strained, with crisis just around the corner, yet reform is not on anyone’s agenda. Meanwhile China, deeply invested in the current system, faces narrowing options as trading partners question its moves abroad, debt levels rise at home, and its current account moves from surplus to deficit. RMB internationalization might appear to provide a way out, but the policy has its limits and tends to exacerbate rather than relieve tensions. We argue that a tension-reducing solution is at hand to the problems of both the international monetary system and China—IMF-style Special Drawing Rights (SDRs). If in a unilateral initiative China were to make the SDR central to its next phase of capital account opening, China’s institutions, corporates and individuals—presently restricted in their access to international currency—would likely embrace it. Begun by China, with support from the international community and Hong Kong, promulgation of the SDR would usher in an era of lower tensions, providing space for development and avoidance of conflict within a reordered monetary system in which China would have a more prominent role.

Suggested Citation

  • Matthew Harrison & Geng Xiao, 2019. "China and Special Drawing Rights—Towards a Better International Monetary System," JRFM, MDPI, vol. 12(2), pages 1-15, April.
    • Handle: RePEc:gam:jjrfmx:v:12:y:2019:i:2:p:60-:d:221182
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    References listed on IDEAS

    as
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    Cited by:

    1. Faridul Islam, 2019. "Currency Crisis: Are There Signals to Read?," JRFM, MDPI, vol. 12(3), pages 1-4, August.

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