The Assessment of the Renminbi Internationalization with Comparision to the Dollar Internationalization

Abstract

China has become the world second-largest economy in terms of GDP since 2010. It was the world largest exporter and second-largest importer in 2011. Its GDP is likely to surpass the United States in the mid-2020s. However, its currency – renminbi (RMB) or yuan has been severely under-represented internationally. Since 2009, Chinese government has officially started promoting RMB internationalization. This paper analyzes the conditions or determinants of currency internationalization. According to the existing studies, output and trade, the countrys financial market, confidence in the value of the currency and network externalities are the four main conditions or determinants for currency internationalization. This paper also includes the role of offshore market and political influence as these two conditions are as important as other four conditions in the case of the RMB internalization. It directly compares RMB internationalization in the 21st century with the dollar internationalization between the 1910s and the 1920s under the conditions assessment.