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Revisiting the Internationalization of the Yuan

Author

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  • Yongding Yu

    (Asian Development Bank Institute (ADBI))

Abstract

As the world’s second largest economy, largest trading nation, and the largest foreign holder of United States (US) government bonds, the People’s Republic of China (PRC) needs a currency with international status that can match its economic status in the global economy. However, sequencing is important. Before the internationalization of the yuan can make meaningful progress, necessary conditions, such as the existence of deep and liquid financial markets, a flexible exchange rate and interest rates responsive to market conditions must be created. The process of yuan internationalization essentially is a process of capital account liberalization. Due to the unprecedented and complex global financial crisis and the PRC’s huge imbalances, capital account liberalization has to be pursued in a cautious way. As a result, the internationalization of the yuan is bound to be a long-drawn process. The PRC’s road map for the internationalization of the yuan is flawed with many missing links and wishful thinking. Yuan internationalization guided by the current road map may be proven counterproductive.

Suggested Citation

  • Yongding Yu, 2012. "Revisiting the Internationalization of the Yuan," Finance Working Papers 23311, East Asian Bureau of Economic Research.
    • Handle: RePEc:eab:financ:23311
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    File URL: http://www.eaber.org/node/23311
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    Cited by:

    1. Agnès Bénassy-Quéré & Yeganeh Forouheshfar, 2013. "The Impact of Yuan Internationalization on the Euro-Dollar Exchange Rate," PSE - G-MOND WORKING PAPERS hal-00961708, HAL.
    2. Edwin L.-C. Lai & Xiangrong Yu, 2015. "Invoicing Currency in International Trade: An Empirical Investigation and Some Implications for the Renminbi," The World Economy, Wiley Blackwell, vol. 38(1), pages 193-229, January.
    3. Cheung, Yin-Wong & Rime, Dagfinn, 2014. "The offshore renminbi exchange rate: Microstructure and links to the onshore market," Journal of International Money and Finance, Elsevier, vol. 49(PA), pages 170-189.
    4. Ming Zhang & Bin Zhang, 2017. "The Boom and Bust of the RMB's Internationalization: A Perspective from Cross-Border Arbitrage," Asian Economic Policy Review, Japan Center for Economic Research, vol. 12(2), pages 237-253, July.
    5. Mikko Huotari & Sandra Heep, 2016. "Learning geoeconomics: China’s experimental financial and monetary initiatives," Asia Europe Journal, Springer, vol. 14(2), pages 153-171, June.
    6. Perry Mehrling, 2015. "Elasticity and Discipline in the Global Swap Network," Working Papers Series 27, Institute for New Economic Thinking.
    7. Mohammed Ahmed, Abdullahi, 2019. "China’s Bilateral Currency Swap Agreement: Strategic Move to Foster Political and Financial Hegemony," MPRA Paper 109879, University Library of Munich, Germany, revised 08 Oct 2019.
    8. Joseph E. Gagnon & Kent Troutman, 2014. "Internationalization of the Renminbi: The Role of Trade Settlement," Policy Briefs PB14-15, Peterson Institute for International Economics.
    9. Yin-Wong Cheung, 2014. "The Role of Offshore Financial Centers in the Process of Renminbi Internationalization," Macroeconomics Working Papers 24049, East Asian Bureau of Economic Research.
    10. Bénassy-Quéré, Agnès & Forouheshfar, Yeganeh, 2015. "The impact of yuan internationalization on the stability of the international monetary system," Journal of International Money and Finance, Elsevier, vol. 57(C), pages 115-135.
    11. Yuming Cui, 2017. "The internationalization of the RMB: a perspective vis a vis East Asian economic and financial integration," Asia Pacific Business Review, Taylor & Francis Journals, vol. 23(3), pages 317-335, May.
    12. Yuming Cui, 2013. "The internationalization of the RMB: where does the RMB currently stand in the process of internationalization," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 27(2), pages 68-85, November.
    13. Ito, Hiro & Kawai, Masahiro, 2016. "Trade invoicing in major currencies in the 1970s–1990s: Lessons for renminbi internationalization," Journal of the Japanese and International Economies, Elsevier, vol. 42(C), pages 123-145.
    14. Barry Eichengreen, 2013. "ADB Distinguished Lecture Renminbi Internationalization: Tempest in a Teapot?," Asian Development Review, MIT Press, vol. 30(1), pages 148-164, March.
    15. Cheung, Yin-Wong & Rime, Dagfinn, 2014. "The offshore renminbi exchange rate: Microstructure and links to the onshore market," Journal of International Money and Finance, Elsevier, vol. 49(PA), pages 170-189.
    16. Ito, Hiro & Chinn, Menzie, 2014. "The Rise of the “Redback” and the People’s Republic of China’s Capital Account Liberalization: An Empirical Analysis of the Determinants of Invoicing Currencies," ADBI Working Papers 473, Asian Development Bank Institute.
    17. Bin Zhang, 2015. "China's Economic Transition Syndrome," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 23(3), pages 59-78, May.
    18. Lee, Il Houng & Park, Yung Chul, 2014. "Use of National Currencies for Trade Settlement in East Asia: A Proposal," ADBI Working Papers 474, Asian Development Bank Institute.
    19. Prasad, Eswar, 2014. "Global Implications of the Renminbi’s Ascendance," ADBI Working Papers 469, Asian Development Bank Institute.
    20. Ramaa Vasudevan, 2018. "The internationalization of the Renminbi and the evolution of China’s monetary policy," Working Papers 1810, New School for Social Research, Department of Economics.
    21. repec:zbw:bofitp:2014_017 is not listed on IDEAS
    22. Subacchi, Paola, 2013. "Expanding Beyond Borders: The Yen and the Yuan," ADBI Working Papers 450, Asian Development Bank Institute.

    More about this item

    Keywords

    Yuan; internationalization; China; PRC; currency; international status; financial markets; exchange rate; capital account;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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