The Renminbi’s Role in the Global Monetary System

We analyze three related but distinct concepts concerning the renminbi’s role in the globalmonetary system: (i) “internationalization” of the currency; (ii) currency convertibility; and (iii)reserve currency status. Their sequencing in relation to other policy goals such as financialsector reforms and exchange rate flexibility will affect their benefit-risk tradeoffs. We describethe measures taken and progress attained in each of these areas, and discuss theimplications of these changes for the balance and sustainability of China’s own economicdevelopment as well as the associated implications for the global monetary system. WhileChina is actively promoting the internationalization of its currency, it is a long way fromattaining full convertibility or meeting other prerequisites for achieving reserve currencystatus. Ultimately, China will proceed with capital account convertibility in its own controlledand gradual manner, with the goal being an open capital account but with significantadministrative and other “soft” controls. The renminbi will play an increasingly important rolein the international monetary system but is unlikely to displace the U.S. dollar anytime soon....