Selecting a Path for RMB’s Internationalization

Abstract

Even a cursory review of the monetary policies, the exchange rate systems and the experience of developed countries and developing countries in opening the capital account during the economic and opening-up process, clearly reveals Mundell’s “Impossible Trinity.” This theory reflects the central conflict plaguing the economic system under an open economy and indicates the extent of policy limitations when selecting from among multiple options. It signifies that the process of internationalizing the RMB may face multiple contradictions, conflicts, and risks—yet the time for selecting a path towards the internationalization of the RMB is now. At the same time, a review of various choices adopted by developed and developing countries in terms of Mundell’s “Impossible Trinity” indicate that choices made among countries are determined by their status and structures at various stages of economic development. As their given economic development evolves, we find that there is actually no unique corner solution, and the question becomes whether there are any non-corner solutions. If there are, what’s the significance of the non-corner solutions for internationalizing the RMB?