Strategies for Internationalizing the Renminbi (Research Series on the Chinese Dream and China’s Development Path)

"This book presents the theoretical framework for the evolution of the international monetary system and the internationalization of the RMB. Combining theoretical research and empirical study, it then provides an in-depth analysis of the relevant issues from multiple perspectives based on this framework. Written by former chief economist at the Bank of China, this book explains the "two-step strategy" from the capital account opening to the full convertibility of the RMB, it also analyzes the status and functions of the HK offshore financial market in internationalizing the RMB."-- Provided by publisher Foreword 6 A New Historical Starting Point for National Development 6 Series Preface 8 Preface 10 Acknowledgements 14 Contents 16 Introduction 19 Reasons for the RMB’s overseas application in East Asia 19 The Special Path of Internationalizing the RMB and its Impacts on East Asia 21 The Special Path Taken by the RMB Toward International Applicability and its Corresponding Significance for China’s Economic and Financial Development 24 The International Application of the RMB Further Facilitates Intra-regional Cooperation Among East Asian Economies 28 1 Monetary Systems and the International Monetary System: Evolution and Reform 32 1.1 Money and the Monetary System: Evolution 33 1.2 The International Monetary System: Formation and Evolution 37 1.2.1 An International Monetary System with Precious Metals as the Standard Foundation 38 1.2.2 The Fiat System 42 1.3 Dilemma Facing the International Monetary System and a Request for Reform 46 1.4 Choosing Which Direction the Reformation of the International Monetary System Will Take 56 1.4.1 The Establishment of a Super-Sovereign Currency 56 1.4.2 Regional Currency 59 1.4.3 The Internationalization of Multiple Sovereign Currencies 63 2 The Internationalization of the RMB: Origins and Challenges 69 2.1 The Internationalization of the RMB Is the Necessary Outcome of Rebalancing the Global Economy 70 2.2 The Internationalization of the RMB Begins Under Specific Conditions 77 2.3 The Progress of the RMB’s Internationalization 84 2.4 The Internationalization of the RMB Challenges the Financial System in China 92 2.4.1 The Full Convertibility of the RMB 92 2.4.2 A Mechanism for Forming the RMB’s Deficit 93 2.4.3 A Sophisticated Financial Market 95 2.4.4 The Independence of the Monetary Policy 95 3 Experiences of Internationalizing Sovereign Currencies and Lessons Learnt in the Process 97 3.1 The Formation of the Balance of Payments Surplus and Deficit, as Well as the Issue of Circulation—Experiences of the Deutschmark and the Japanese Yen as Well as Lessons Learnt 97 3.1.1 The Internationalization of the Deutschmark 98 3.1.2 The Internationalization of the Japanese Yen 100 3.1.3 Common Points Between the Internationalization of the Deutschmark and the Japanese Yen 101 3.1.4 Divergences in the Process of Internationalizing the Deutschmark and the Japanese Yen 105 3.2 Opening the Capital Account—A Traditional Difficulty Faced by Developing Countries 109 3.3 Monetary Policies—The Different Choices of Developed Countries and Developing Countries 116 3.4 Exchange Rate or Interest Rate—Lessons Learnt from the Monetary Policies of Developed and Developing Countries 130 4 Selecting a Path for RMB’s Internationalization 139 4.1 Corner Solutions to the “Impossible Trinity” 139 4.2 Limitations of Corner Solutions to the “Impossible Trinity,” as Well as Non-corner Solutions in the Trilemma 145 4.3 The Significance of Non-corner Solutions to the RMB Internationalization Process 152 5 The Role of the Hong Kong Financial Market in the Process of Internationalizing the RMB 159 5.1 The Evolution of the Hong Kong Financial Market and Its Arrangements Regarding the Exchange-Rate Regime 159 5.2 The Hong Kong Offshore Financial Market and Its Significance for the Internationalization of the RMB 166 5.3 New Challenges Faced by the Offshore RMB Financial Market in Hong Kong 173 6 The Opening of the Capital Account and the Full Convertibility of the RMB 179 6.1 The Unique Significance of Opening the RMB Under the Capital Account 180 6.2 The Opening of China’s Capital Account: The Process and Experience 184 6.2.1 Direct Investment 188 6.2.2 Securities Investments 193 6.2.3 Credit Management 195 6.3 Methods and Steps to Realize the Full Convertibility of the RMB 198 7 A Method for Accelerating the RMB’s Internationalization 205 7.1 Creating the Conditions for Realizing the Convertibility of the RMB Under the Capital Account—Shanghai Pilot Free Trade Zone 205 7.2 Establishing a More Stable Mechanism for Generating the Capital Account Deficit—“The Silk Road Economic Belt and the 21st-Century Maritime Silk Road” (The Belt and the Road) 212 7.2.1 The Significance of “The Belt and the Road” in Terms of the Sustainable Development of China’s Economy 212 7.3 Developing China’s Financial System to Target the Global Economy—The RMB Joins the SDR 215 8 The Prospect of Internationalizing the RMB 220 8.1 The Sustainable Development of China’s Economy Is the Foundation for Internationalizing the RMB 220 8.2 To Develop a Global Economic Community with a Shared Destiny Is to Meet the Requirements for Internationalizing the RMB 227 8.3 World Economic Prospects and an Outlook on the RMB’s Internationalization 230 Afterword 234 References 236 Front Matter ....Pages i-xxxi Monetary Systems and the International Monetary System: Evolution and Reform (Yuanzheng Cao)....Pages 1-37 The Internationalization of the RMB: Origins and Challenges (Yuanzheng Cao)....Pages 39-66 Experiences of Internationalizing Sovereign Currencies and Lessons Learnt in the Process (Yuanzheng Cao)....Pages 67-108 Selecting a Path for RMB’s Internationalization (Yuanzheng Cao)....Pages 109-128 The Role of the Hong Kong Financial Market in the Process of Internationalizing the RMB (Yuanzheng Cao)....Pages 129-148 The Opening of the Capital Account and the Full Convertibility of the RMB (Yuanzheng Cao)....Pages 149-174 A Method for Accelerating the RMB’s Internationalization (Yuanzheng Cao)....Pages 175-189 The Prospect of Internationalizing the RMB (Yuanzheng Cao)....Pages 191-204 Back Matter ....Pages 205-213