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Renminbi Internationalization: The Prospects of China’s Yuan as the Next Global Currency

Author

Listed:
  • Edwin Lai

    (Department of Economics, Hong Kong University of Science and Technology
    Institute for Emerging Market Studies, Hong Kong University of Science and Technology)

Abstract

Edwin Lai, Professor of Economics at HKUST and IEMS Faculty Associate, analyzes the current and potential use of the renminbi (RMB) as an international currency, and measures that need to be taken before further internationalization can take place. By exploring the determinants of various invoicing currencies around the Asia-Pacific region and beyond, Prof. Lai projects the potential of the RMB to be used for inter-regional trade invoicing in the Asia-Pacific, and compared this to the actual amount of RMB used for invoicing. His most surprising finding is that, as of the most recent trade invoicing data available (2012), only RMB 84 billion is actually used in trade invoicing, whereas conservative estimates of the RMB’s potential indicate that RMB 760 billion should be used for such invoicing. This represents an 89% gap between actual usage and potential usage. Prof. Lai goes on to provide policy recommendations to assuage the large discrepancy between actual and potential RMB usage, and points to a relaxing of state capital controls, allow more convertibility of the RMB, and reform its financial sector much more deeply, amongst other suggestions.

Suggested Citation

  • Edwin Lai, 2015. "Renminbi Internationalization: The Prospects of China’s Yuan as the Next Global Currency," HKUST IEMS Thought Leadership Brief Series 2015-09, HKUST Institute for Emerging Market Studies, revised Jun 2015.
    • Handle: RePEc:hku:briefs:201509
    as

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    References listed on IDEAS

    as
    1. Barry Eichengreen & Ricardo Hausmann, 1999. "Exchange rates and financial fragility," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 329-368.
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    More about this item

    Keywords

    RMB internationalization; Renminbi Internationalization; Yuan Internationalization; Global Currencies; IMF SDR; Inter-regional trade invoicing;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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