The renminbi bloc is here: Asia down, the rest of the world to go?
Arvind Subramanian, Martin Kessler 27 October 2012
As China becomes ever more important in the global economy, will its currency take on an international role? This column argues that in some sense, this is already happening – an increasing number of emerging-market currencies seem to track (co-move with) the renminbi – and the trend is set to continue.
The staggering economic rise of China in the last three decades leads to the question of the potential internationalisation of its currency, the renminbi (RMB). Internationalisation has different dimensions. An international currency is widely used in financial and trade transactions, and crucially it is used as a store of value. Some, like Eichengreen (2011) and Frankel (2011) see a potential global role for the RMB, provided important ancillary reforms to the domestic financial system and to the financial account first take place.
Global economy International trade
China, renminbi, global currency
The renminbi’s prospects as a global reserve currency
Eswar Prasad, Lei (Sandy) Ye 16 February 2012
Is China’s currency destined to become the dominant global reserve currency? This column argues that despite not yet having a flexible exchange rate or open capital account, China’s government is pursuing ‘liberalisation with Chinese characteristics’. It argues that the renminbi will become a reserve currency within the next decade, eroding but not displacing the dollar’s dominance.
Popular discussions about the prospects of China’s currency – the renminbi – range from the view that it is on the threshold of becoming the dominant global reserve currency to the concern that rapid capital-account opening poses serious risks for China.
International finance International trade
China, globalisation, renminbi, exchange-rate policy
The rise of the renminbi as international currency: Historical precedents
Jeffrey Frankel 10 October 2011
Over the last few years, use of China’s currency for international trade has been growing steadily. Some argue this is the start of a journey that will see the renminbi displace the dollar and become the international reserve currency within a decade. This column asks whether such prophecies are realistic by looking at how other international currencies established themselves.
All of a sudden, the renminbi is being touted as the next big international currency. Just in the last year or two, the Chinese currency has begun to internationalise along a number of dimensions. A renminbi bond market has grown rapidly in Hong Kong, and one in renminbi bank deposits. Some of China’s international trade is now invoiced in the currency. Foreign central banks have been able to hold renminbi since August 2010, with Malaysia going first.
reserve currency, China, renminbi, dollar
China’s currency and the US economy
Fred Bergsten 01 November 2010
Yiping Huang recently argued that the US would not win a currency war over global imbalances. This column agrees that a currency or trade war would be lose-lose. But it says that such a conflict is inevitable unless the root causes of the growing imbalances are addressed
In a 19 October column on this site, “A currency war the US cannot win”, Yiping Huang argued that comprehensive policy packages in China and the US, including but ranging well beyond exchange rate realignment, are required to achieve the needed global rebalancing. He also argued that progress is already being made on both counts (Huang 2010).
Global economy International trade
US, global imbalances, China, renminbi, exchange-rate policy
Can China save the world by consuming more?
Hans Genberg, Wenlang Zhang 25 April 2010
Would an increase in Chinese domestic demand meaningfully reduce global imbalances and improve US and European employment prospects? This column says that Chinese policy has a relatively small impact on developed economies' macroeconomic circumstances. It estimates that major reduction in Chinese saving would improve US employment by less than one quarter of a percentage point.
“China is making all of us poorer” writes Paul Krugman in his blog at the New York Times (Krugman 2010). He is referring to the current account surplus of the Chinese economy draining aggregate demand from the rest of the world and leading to lower employment and income. Krugman is not alone in attributing extraordinary importance to economic developments in the Middle Kingdom.
International finance Macroeconomic policy
global imbalances, unemployment, renminbi, Chinese saving
Estimating the effect of renminbi appreciation on US jobs: A comment on Francois' China result
William R. Cline 23 April 2010
Would appreciation of the renminbi actually destroy US jobs? This column discusses recent estimates that find that making intermediate inputs from China more expensive would hurt US global competitiveness. It argues that the direct effect of an improvement in the US trade balance would create far more jobs than might be lost to more expensive intermediate inputs.
In a recent study, Francois (2010) estimates that if China appreciated the renminbi by 10%, the US trade balance would rise by $100 billion but the number of US jobs would decline by 430,000. He uses a computable general equilibrium (CGE) model to make this calculation. He allows for below-full capacity and sticky wages so that it is possible for a change in the external balance to affect the level of employment. The paradoxical negative sign on employment as a consequence of the currency correction stems from the model specification that emphasises induced losses of jobs throughout the eco
competitiveness, renminbi, Francois
The US-Sino currency dispute: Introducing a new eBook
Simon J Evenett 16 April 2010
Today Vox posts a new eBook “The US-Sino currency dispute: New insights from economics, politics, and law” that gathers 28 short essays written by 33 authors from around the world. The eBook provides the best available economic, legal, political, and geopolitical thinking on the confrontation, as well as on the causes and likely consequences of the dispute.
Thanks to deft diplomatic footwork, a US-China confrontation over the renminbi has been avoided – or at least postponed. This is a very good thing. Escalation of this conflict between the world’s two largest traders is the last thing the world economy needs. Many nations around the world are relying on rapidly recovering trade flows – both imports and exports – to get the factories back to work. And trade wars – like real ones – can be surprisingly difficult to manage once started.
China, renminbi, exchange-rate policy, geopolitics, US-Sino currency dispute
The US-Sino Currency Dispute: New Insights from Economics, Politics, and Law
Simon J Evenett,
Thanks to deft diplomatic footwork, a US-China confrontation over the renminbi has been avoided. But the US Treasury has merely postponed the publication of its report on foreign currency manipulators, and the dispute may overshadow the G20 meetings in June and November. The 28 short essays in this eBook provide the best available economic, legal, political, and geopolitical thinking on the causes and likely consequences of the dispute.
Show in Editors Choice Box?
Exchange rates Global crisis
Edited by Simon J Evenett
Published 15 April 2010
, global crisis
, yuan undervaluation
, Chinese exchange rate
Is China's currency undervalued?
Helmut Reisen 16 April 2010
Many economists cite the undervalued renminbi as a major cause of global imbalances and a contributing factor to the global crisis. This column says the undervaluation results mainly from the Balassa-Samuelson effect and that a rebalancing of the world economy will need reforms in China’s social, pension and family policies rather than currency appreciation.
Most economists agree that allowing global current account imbalances, notably the US deficit and the Chinese surplus, and their accompanying capital flows to accumulate contributed to the over-leveraging and under-pricing of risk that triggered the crisis. This was recognised at the Pittsburgh Summit in September 2009 where the G20 leaders announced the creation of a new framework to coordinate and monitor national economic policies in order to reduce global imbalances and prevent them from building up in the future.
Exchange rates Global crisis
global imbalances, renminbi, exchange rate policy
Krugman’s Chinese renminbi fallacy
Yiping Huang 26 March 2010
Should the US follow Paul Krugman’s advice and use protectionist policies against China’s exports to encourage a revaluation of its currency? This column argues against this idea. Far from saving jobs, a revaluation of the Chinese currency might even cut global economic growth by 1.5%.
Paul Krugman is one of the international economists I most respect. He is a towering figure in the study of international trade. But his understanding of some international economic policy issues is, to put it generously, naïve. In fact, were the Obama administration to follow his policy advice, the world economy could encounter more serious difficulties, if not another recession, in the years ahead.
Exchange rates International trade
global imbalances, China, renminbi