Renminbi Rising: A New Global Monetary System Emerges

A CRITICAL ANALYSIS OF RMB INTERNATIONALIZATION FROM A TEAM OF NOTED EXPERTS

"In Renminbi Rising, Overholt, Ma and Law, shine a bright light on the causes and consequences of the growing international use of the Chinese currency, the RMB, in trade and investment, and explore the future coevolution of the RMB and the international monetary system. They present a superbly detailed and nuanced account of the Chinese economy, its financial system, its capital markets, its risks, and its growing external impact. It is crucial reading for anyone seeking an insight into the future of the Chinese and Global economies and financial systems."
Michael Spence, Winner of the 2001 Nobel Prize in Economic Science

"The Overholt, Ma and Law book Renminbi Rising adds significantly to our understanding of the evolutionary role of the Renminbi (RMB) in international transactions and investment. This book is particularly timely with the addition of the RMB into the SDR basket. I enjoyed the book′s economic insights coupled with its detailed discussion of institutional considerations such as the current and future development of Chinese markets. There are myriad lessons to internalize from this excellent book."
Myron S. Scholes, Winner of the 1997 Nobel Prize in Economic Science

Renminbi Rising is a vital resource that tracks the emergence of China′s internationalizing currency and offers expert analysis of the global repercussions. Noted economics researchers William Overholt, Guonan Ma and Cheung Kwok Law describe the circumstances that enabled the emergence of this new global monetary system and clearly show why China′s Renminbi has become the next in line system as the leadership of the United States diminishes.

The authors offer economic policymakers and regulators a thorough examination of the changes driving the shift to this new currency. In addition, financial professionals will find valuable guidance in the discussion surrounding business opportunities that the RMB brings to the worldwide economy.

Renminbi Rising covers a range of essential topics including the emergence of new Chinese–sponsored financial institutions, the scale of various RMB businesses and the predicted transformation of the global financial system.

List of Figures

List of Tables

Foreword

Acknowledgments

About the Authors

Chapter 1: Internationalizing the RMB

The Conditions for Becoming a Global Currency

Business and RMB

RMB–Product Markets

Reserve Currency

The Emerging Monetary Order

Chapter 2: The Rise and Fall of Currencies Historical Lessons for the RMB

Risks in International Monetary System Transitions

The Role of Eurodollars in the 2008 Global Financial Crisis

2008: Year Zero for a New International Monetary System?

Conditions for Currency Internationalization: Market Demand and Institutional Supply

Institutional Inertia and Disruptive Events

Offshore Currencies and International Liquidity

Current International Reactions to the RMB s Rise

RMB Internationalization

Conclusion

References

Chapter 3: Economic and Institutional Foundations for the Rise of the RMB

Economic Foundation

Surprises

New Growth Engines

Capital–Account Liberalization

Institutional Quality

Conclusion

References

Chapter 4: Can the Chinese Bond Market Support a Potential Global Renminbi?

Overview of the Chinese Bond Market

Chinese Treasury Market in International Perspective

A Dilemma and a Bold Public–Debt Consolidation Scheme

Government–Backed Debt Securities

Conclusion

References

Chapter 5: Waxing and Waning of the Chinese Stock and Banking Markets

Chinese Stock Market: Growing Despite Immaturity Flaws

A Massive Chinese Banking Market Opening

Conclusion

References

Chapter 6: Rising FX Turnover of the RMB

Could the Market Accommodate More Global Currencies?

What Determines the FX Liquidity of the RMB?

Potential for Rising RMB Turnover by Market Segment

Conclusion

References

Chapter 7: A Spreading Global Network for RMB Trade

The RMB s International Position

Hong Kong Still the Dominant Offshore RMB Center

More Offshore Centers Catch Up to Spread a Global Network

Prospects for Offshore RMB Centers

Conclusion

References

Chapter 8: Brief Examples of Business Use of the Internationalizing RMB

Samsung s Use of RMB to Reduce Foreign Exchange Conversion Costs

Alstom s Use of RMB as Corporate Treasury Currency

Chinese Importers Profit Incentives from Use of RMB Trade Settlement: Changhong

Conclusion

Reference

Chapter 9: The RMB as a Reserve Currency

Global Perspectives

Scale of RMB Holdings

Drivers of Change

Exchanging RMB in a Crisis

Onshore and Offshore Access

Offshore Alternatives

Conservatives Change Course

Roadblocks Ahead?

RMB Inclusion in SDR

Capital–Account Reform

Conclusion

References

Chapter 10: Concluding Reflections

Appendix A: China RMB Financial Statistics and Forecasts by Other Institutions

Glossary

Index

WILLIAM OVERHOLT is a Senior Fellow at Harvard University′s Asia Center and is the former President of the Fung Global Institute in Hong Kong. He is the author of Asia, America and the Transformation of Geopolitics and The Rise of China.

GUONAN MA is a Fellow of Bruegel, the Belgian think tank and advisor to several central banks, and has served as senior economist at the Bank for International Settlements and major investment banks.

CHEUNG KWOK LAW is an economist at the Chinese University in Hong Kong and a veteran economist of several major investment banks.