9 - The Prospects of RMB Internationalization

Summary

In Chapter 9, the concluding chapter, I discuss the prospects of RMB internationalization. There are plenty of reasons to be pessimistic. First, the population is ageing, and the labor force has already begun to shrink in 2012. This hurts the economic size effect. Second, China is too wary of the risks of free capital mobility to relinquish capital controls in the onshore market any time soon. Third, the development of a deep, broad, and liquid financial market in the onshore market will probably take a long time. Fourth, in order to be a “safe-haven currency,” China must have an independent judiciary, an independent central bank, democracy, and freedom, which China still lacks. There are, however, reasons for cautious optimism as well. First, despite possible slowdown in the growth rate, China’s economy is likely going to become the largest economy before long. Second, China has a strong desire to internationalize its currency. Third, as the US share of the world’s GDP is set to fall continuously, the United States would eventually not be able to supply the assets for reserves and payments needed by the world. Some other currency(ies) is needed to fill the gap, and the RMB is a strong candidate.