One Currency, Two Markets China's Attempt to Internationalize the Renminbi

"The Chinese government is trying to internationalize the RMB. But what are the real reasons for doing it? Will it succeed? What are the factors working in its favor? What are the impediments? What are the implications for the rest of the world? In this book, I explain how the problem with the international monetary system since the demise of the Bretton Woods system and the recent global financial crisis prompted China to seek independence from the dollar standard. One way is to make the RMB a widely accepted currency internationally. China, however, is in an awkward position. On the one hand, it is the second largest economy and the largest trading nation in the world, and it would likely become the largest economy before long. This works in favor of the internationalization of the RMB. On the other hand, China is still an emerging economy, meaning that its financial and legal institutions are still immature compared with the more advanced system in the West. Yet, China does not want to fully integrate its financial system with the West any time soon. As currency internationalization requires the currency to be largely convertible in the capital account, this factor works against the internationalization of the RMB. Thus, China tries to internationalize its currency in its own unique way, i.e. by adopting the "one currency, two markets" approach, which entails establishing a global offshore RMB market"--