Renminbi Internationalization: The Prospects of China’s Yuan as the Next Global Currency

Published on: 2015-06-01


LAI, Edwin
LAI, Edwin, Professor of Economics at HKUST and IEMS Faculty Associate, analyzes the current and potential use of the renminbi (RMB) as an international currency, and measures that need to be taken before further internationalization can take place.
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By exploring the determinants of various invoicing currencies around the Asia-Pacific region and beyond, Prof. Lai projects the potential of the RMB to be used for inter-regional trade invoicing in the Asia-Pacific, and compared this to the actual amount of RMB used for invoicing. His most surprising finding is that, as of the most recent trade invoicing data available (2012), only RMB 84 billion is actually used in trade invoicing, whereas conservative estimates of the RMB’s potential indicate that RMB 760 billion should be used for such invoicing. This represents an 89% gap between actual usage and potential usage.

Prof. Lai goes on to provide policy recommendations to assuage the large discrepancy between actual and potential RMB usage, and points to a relaxing of state capital controls, allow more convertibility of the RMB, and reform its financial sector much more deeply, amongst other suggestions.

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Photo credit: Close Up of 100 Yuan Note, by David Dennis, BY-NC-SA 2.0


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