Renminbi internationalization

Abstract

The current role of emerging market currencies in the international monetary system is limited. However, the increasing importance of emerging markets in the global economy suggests that these currencies could become a vehicle for greater reserve currency diversification and the production of reserve assets in the future. In recent years, the growing importance of China in the global economy (Figure 9.1), the policies and reforms implemented by the Chinese authorities, and the increasing interconnectedness of the global economy have set the stage for a greater role for the renminbi (RMB) in the international monetary and financial system. In November 2015 the IMF’s Executive Board recognized the increasing use in economic and financial transactions and wide trading of the RMB by deciding to include the RMB in the special drawing right (SDR) basket of currencies, effective on October 1, 2016 (IMF 2015a, 2015b). The decision is another milestone in the integration of the Chinese economy into the global financial system and an acknowledgment of China’s progress in reforming its monetary and financial system. This chapter examines RMB internationalization. It briefly discusses what drives currency internationalization, looks at the existing literature, reviews key developments in offshore RMB use and trading, summarizes underlying policy measures that have promoted RMB internationalization, and discusses the implications of RMB internationalization for the international monetary system.