Issues Facing Renminbi Internationalization: Observations from Chinese,regional and global perspectives

In this paper, we present the issues facing internationalization of China’s renminbi from three perspectives: (1) China’s own perspective centering on the “liberalization of capital account transactions,” (2) a regional perspective based on “currency zones,” and (3) a global perspective focusing on the “international monetary system.” For the renminbi to become a truly international currency, three prerequisites must be met. (1) From the viewpoint of China, which is the issuer of the renminbi, it must further develop its financial markets while at the same time liberalize capital account transactions so that both residents and nonresidents have equal access to these markets. (2) From the regional viewpoint, confidence in the renminbi must be established and countries with close ties to the Chinese economy (mainly neighboring states) must adopt foreign exchange policies that seek stability of their own currencies against the renminbi (which means, in effect, the formation of a “renminbi zone”). (3) From the global viewpoint, the economic size of the renminbi zone centered on China must be comparable to the dollar zone centered on the United States and the eurozone centered on the European Union. While progress has been made toward fulfilling these three prerequisites, many obstacles still need to be overcome. In particular, China’s strict controls over capital account transactions have remained a major hindrance to progress toward internationalization of the renminbi.