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Politics of China's Currency Internationalisation: Renminbi


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Assesses political and economic factors and conditions determining China's success for economic reform--in particular currency internationalisation. Empirical cases of City of London and Taiwan.

Published in: Economy & Finance
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Politics of China's Currency Internationalisation: Renminbi

  1. 1. The Politics of China’s Currency Internationalisation: Regional Renminbi Hubs China at a Cross-Roads, DIIS Conference Dr. Winnie King University of Bristol 2016
  2. 2. Restructuring with Chinese Characteristics Assessing nature of what ‘Crossroads’ China is facing necessitates understanding: • Why does China do what it does? • What are China’s concerns? • Where does the market come in? • Government Intervention vs Market Mechanisms • What can it offer? • What can we expect? • Re: Currency and Capital Flows • RMB hubs as a lens of explanation
  3. 3. Motivations (Why does China do what it does?) Currency Internationalisation in Economic Restructuring & Macroeconomic rebalancing • Lessons of 2008 GFC Diversification of Risk; Economic Structure; Dollar Hegemony • Supporting Development Strategy (restructuring economy [supply-side reform], access to resources, right kind of infrastructure, right kind of investment ) • Security Considerations of Growth and Diplomacy (aid & alliances; securing resource and access (One Belt One Road))
  4. 4. Risks (What are China’s concerns?) Risk of Currency Internationalisation in Economic Restructuring & Macroeconomic rebalancing • Vulnerability of capital accounts flows (Responding to 2008; learning from 1998 Asian Financial Crisis) • Regulations and governance of monetary policy • Currency management (stability) • Ignoring this in the face of changing economic context: • Rising cost of labour: up 60% since 2009;; middle income trap; inequality • Rise of alternative destinations for investment and growth in China’s ‘traditional’ labour intensive manufacturing sector: ASEAN
  5. 5. RMB Hubs: Where does the market come in? and What does it offer? Traditional preference for government intervention over the market mechanisms • Strong historical, ideological and socio-economic roots But reform necessitates a greater role for the market • RMB hubs as strategically selected infrastructure • -- for Traditional Economy and New Economic Sectors • -- for Currency Internationalisation • -- as a testing ground • The political and economic logic onshore/offshore rationale
  6. 6. The RMB and China’s Traditional Economy
  7. 7. It’s all about liquidity: RMB as readily available currency
  8. 8. Contribution to New Economy • Niche—Cross-Strait Trade & Investors (Greater China politics) • Resource Pooling (deepening integration) • Development and expansion of new financial instruments and tools (Formosa Bond) • ODI • Institutionalisation of regional financial networks, collaboration and cooperation on regulations, laws, normal practice • Niche—world financial centre (expertise; time zone; innovation) • Upgrading of China’s Financial System and beyond (‘13-5’) • Resource Pooling • Funding [PBoC bond (2015); RMB denominated UK govt debt (2014)] • Greater Transparency • RMB denominated debt • ODI/FDI (‘13-5’) • Taiwan London
  9. 9. Currency Internationalisation and State Legitimacy (What can we expect?) Rebalancing Economic Structure (‘13-5’) Securing and Expansion of Renminbi Market Access (Onshore/Offshore ‘Connect’) • Transformation both China’s and Hub’s asset holdings • Shift between government intervention and allowing market to dominate • August 2015 • Managing expectations (domestic and international) • Improved communication • Win-Win under a ‘New Normal’more opportunities, more volatility, slower profits, maturing management
  10. 10. Thank you