Overcoming Chinese Monetary Division and External Anchoring in East Asia

There are few recent historical precedents for maintaining the high degree of separation between internal monetary arrangements that still prevails between Hong Kong and Mainland China. This paper anticipates the erosion of this separation and considers the economics of the different forms which monetary unification of China could take. It argues that achieving such unification without resort to capital controls or expropriation is a precondition for developing a second major international currency in East Asia, rivaling the yen. Until the renminbi has established itself as an international currency inside a unified and sound financial system that is up to Hong Kong's current standards, there can be no progress toward a regional monetary union in East Asia. While an internal goal of Chinese Monetary Union is banking reform and financial integration, an external goal is to help emancipate both China and East Asia as a whole safely from the U.S. dollar standard