Pros and Cons of International Use of the RMB for China

Abstract

Along with economic globalization and international financial integration, currency internationalization has been an important issue in the study of international finance. Even though there is still no consistent definition for the internationalization of a currency, the various definitions actually share some common points. Tavlas (1998) and Hartman (2002) argued that if a currency is received by the institutions or individuals of other countries, and it functions as the medium of exchange, unit of account and store of value, then it can be considered as an international currency. Since the 1990s, the reputation of the Chinese renminbi (RMB) in the international market has given greatly. Its influence has extended to neighboring countries such that the RMB is widely accepted as the settlement currency in border trades with Vietnam, Thailand, Burma, Cambodia, North Korea, Mongolia, Russia, Pakistan and Nepal. The Philippines, South Korea, Cambodia, Malaysia and Nepal have already accepted the RMB as their foreign exchange reserve. Bergsten (1975) analyzed both the internal and external economic conditions of an international currency, as they affected the US dollar. The internal conditions include robust economic growth, price stability, comparative advantages of international scale, and highly developed financial markets. The external conditions include foreign confidence in the stability of the convertibility regime, as well as the maintenance of a reasonable mobility ratio and the healthy balance of payments. Based on these factors, the achievement of the international status