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ADB Distinguished Lecture Renminbi Internationalization: Tempest in a Teapot?

ADB Distinguished Lecture Renminbi Internationalization: Tempest in a Teapot? ADB Distinguished Lecture Renminbi Internationalization: Tempest in a Teapot? BARRY EICHENGREEN∗ Internationalization of the renminbi is a stated goal of the Chinese government, its brief flirtation with Special Drawing Rights and an Asian Currency Unit notwithstanding. Chinese officials understand that a dollar-centric international monetary and financial system is a mixed blessing. Doing cross-border business in their own currency confers convenience value and efficiency advantages on United States (US) banks and firms. It frees them from the costs of converting currencies and hedging exchange rate exposures, something that Chinese banks and firms will enjoy only when they are similarly able to conduct international transactions in their home currency. Relying on the dollar for international liquidity and reserves lays the People’s Republic of China (PRC) open to the foibles of US policy, whose downside was made clear by the incipient liquidity shortage that followed the failure of Lehman Bros. in 2008. It exposes the PRC to the risk of capital losses on its foreign security holdings. Renminbi internationalization is part and parcel with Chinese leaders’ efforts to rebalance their economy from investment to consumption, from exports to domestic absorption, and from manufacturing to services, including financial services. This explains why http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Asian Development Review MIT Press

ADB Distinguished Lecture Renminbi Internationalization: Tempest in a Teapot?

Eichengreen, Barry
Asian Development Review , Volume 30 (1) – Mar 1, 2013
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Publisher
MIT Press
Copyright
© 2013 Asian Development Bank and Asian Development Bank Institute
ISSN
0116-1105
DOI
10.1162/ADEV_a_00010
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Abstract

ADB Distinguished Lecture Renminbi Internationalization: Tempest in a Teapot? BARRY EICHENGREEN∗ Internationalization of the renminbi is a stated goal of the Chinese government, its brief flirtation with Special Drawing Rights and an Asian Currency Unit notwithstanding. Chinese officials understand that a dollar-centric international monetary and financial system is a mixed blessing. Doing cross-border business in their own currency confers convenience value and efficiency advantages on United States (US) banks and firms. It frees them from the costs of converting currencies and hedging exchange rate exposures, something that Chinese banks and firms will enjoy only when they are similarly able to conduct international transactions in their home currency. Relying on the dollar for international liquidity and reserves lays the People’s Republic of China (PRC) open to the foibles of US policy, whose downside was made clear by the incipient liquidity shortage that followed the failure of Lehman Bros. in 2008. It exposes the PRC to the risk of capital losses on its foreign security holdings. Renminbi internationalization is part and parcel with Chinese leaders’ efforts to rebalance their economy from investment to consumption, from exports to domestic absorption, and from manufacturing to services, including financial services. This explains why

Journal

Asian Development Review – MIT Press

Published: Mar 1, 2013

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