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Internationalizing Like China

Author

Listed:
  • Clayton, Christopher
  • Santos, Amanda Dos
  • Maggiori, Matteo

    (Stanford University)

  • Schreger, Jesse

Abstract

We empirically characterize how China is internationalizing the Renminbi by staggering the entry of different types of foreign investors into its domestic bond market and propose a dynamic reputation model to explain this strategy. Our framework rationalize China’s strategy as trying to build credibility as an international currency issuer while reducing the cost of capital flight. We provide a sufficient statistic to measure countries' reputation over time and show that it can be estimated using micro data on foreign investors' portfolios. We use our framework to explore how countries compete to become a reserve currency provider.

Suggested Citation

  • Clayton, Christopher & Santos, Amanda Dos & Maggiori, Matteo & Schreger, Jesse, 2022. "Internationalizing Like China," SocArXiv r2msa_v1, Center for Open Science.
    • Handle: RePEc:osf:socarx:r2msa_v1
    DOI: 10.31219/osf.io/r2msa_v1
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    References listed on IDEAS

    as
    1. Bahaj, Saleem, 2020. "Jumpstarting an International Currency," CEPR Discussion Papers 14793, C.E.P.R. Discussion Papers.
    2. Eichengreen, Barry & Macaire, Camille & Mehl, Arnaud & Monnet, Eric & Naef, Alain, 2022. "Is Capital Account Convertibility Required for the Renminbi to Acquire Reserve Currency Status?," CEPR Discussion Papers 17498, C.E.P.R. Discussion Papers.
    3. Markus K Brunnermeier & Michael Sockin & Wei Xiong, 2022. "China’s Model of Managing the Financial System," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 89(6), pages 3115-3153.
    4. Jason Choi & Rishabh Kirpalani & Diego J. Perez, 2022. "The Macroeconomic Implications of US Market Power in Safe Assets," NBER Working Papers 30720, National Bureau of Economic Research, Inc.
    5. Christopher Clayton & Andreas Schaab, 2022. "Multinational Banks and Financial Stability," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 137(3), pages 1681-1736.
    6. Barry Eichengreen & Arnaud Mehl & Livia Chitu, 2017. "How Global Currencies Work: Past, Present, and Future," Economics Books, Princeton University Press, edition 1, number 11124.
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    Cited by:

    1. Yang, Bohan & Wang, Bin, 2024. "The time-varying U.S. treasury bond demand elasticity," Economics Letters, Elsevier, vol. 241(C).
    2. Colin Weiss, 2022. "Geopolitics and the U.S. Dollar's Future as a Reserve Currency," International Finance Discussion Papers 1359, Board of Governors of the Federal Reserve System (U.S.).
    3. Gerding, Felix & Hartley, Jonathan S., 2024. "De-dollarization? Not so fast," Economics Letters, Elsevier, vol. 238(C).
    4. Juan J. Cortina & Maria Soledad Martinez Peria & Sergio L. Schmukler & Jasmine Xiao, 2024. "The Internationalization of China’s Equity Markets," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 72(2), pages 554-610, June.

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