Regionalization of the RMB and China’s Capital Account Liberalization

This paper investigates the current situation and main reasons for the massive circulation of China’s national currency, the renminbi (RMB), in China’s neighboring economies. It indicates that the expansive use of RMB in Asia is the beginning of the process of RMB internationalization. This process is being driven by a strong Chinese economy and increased investors’ confidence in RMB. Internationalization of RMB is a high priority for the Chinese government and the management of this process should depend upon a cost and benefit analysis of the various options available. At present, due to the developing nature of the Chinese economy, the internationalization of RMB is restricted to the Southeast Asia. Even so, this regionalization will impact China’s current capital control regime directly. In order to eliminate the financial risks involved, transition measures should be prudently implemented. To be most effective the government should coordinate the processes of regionalization and convertibility of RMB.