RMB Internationalization and Its Implications for Asian Monetary Cooperation

The status of the renminbi (RMB), China's currency, is not commensurate with the country's global economic prowess as the world's largest trading nation and second largest economic power measured by GDP. When the global financial crisis revealed the inherent defects of the existing U.S. dollar-centric international monetary system, the government of People's Republic of China initiated efforts to promote the international use of the RMB. This paper reviews the historical experience of international currencies and examines the implications for RMB. It addresses some of the imperfections of the current international monetary system as well as the background and motivation of RMB internationalization. By evaluating the main developments since 2009, the paper deals with the remaining issues related to RMB internationalization, such as capital account liberalization, exchange rate regime, and domestic financial market reform. Findings indicate that the RMB will unlikely replace the role of the dollar, because the euro could not challenge the status of the dollar during the last decade. Despite without a formal monetary arrangement such as the euro, the RMB may achieve its status as a regional settlement currency within Asia, given the increasing volume of trade with China