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Renminbi Rising
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Renminbi Rising
A New Global Monetary
System Emerges
WILLIAM H. OVERHOLT
GUONAN MA
CHEUNG KWOK LAW
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This edition first published 2016
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Library of Congress Cataloging-in-Publication Data
Names: Overholt, William H., author.
Title: Renminbi rising : a new global monetary system emerges / William H.
Overholt, Guonan Ma, Cheung Kwok Law.
Description: Chichester, West Sussex, United Kingdom : John Wiley & Sons,
Inc., 2016. | Includes bibliographical references and index.
Identifiers: LCCN 2015038330 | ISBN 978-1-119-21896-8 (cloth)
Subjects: LCSH: Renminbi. | Finance—China. | China—Foreign economic relations.
Classification: LCC HG1285 .O94 2016 | DDC 332.4/50951—dc23 LC record available at
http://lccn.loc.gov/2015038330
A catalogue record for this book is available from the British Library.
ISBN 978-1-119-21896-8 (hardback) ISBN 978-1-119-21898-2 (ePDF)
ISBN 978-1-119-21897-5 (ePub) ISBN 978-1-119-21899-9 (obk)
Cover design: Wiley
Cover images: Dragon image ly86/iStockphoto; Gold image mexrix/Shutterstock
Set in 11/13pt TimesLTStd-Roman by Thomson Digital, Noida, India
Printed in Great Britain by TJ International Ltd, Padstow, Cornwall, UK
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To LIU Ming Kang. His reformist integrity inspires us.
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CONTENTS
List of Figures xi
List of Tables xiii
Foreword xv
Acknowledgments xvii
About the Author xix
CHAPTER 1
Internationalizing the RMB 1
The Conditions for Becoming a Global Currency 2
Business and RMB 10
RMB-Product Markets 11
Reserve Currency 14
The Emerging Monetary Order 16
CHAPTER 2
The Rise and Fall of Currencies – Historical Lessons
for the RMB 21
Risks in International Monetary System Transitions 23
The Role of Eurodollars in the 2008 Global Financial
Crisis 26
2008: Year Zero for a New International Monetary
System? 27
Conditions for Currency Internationalization:
Market Demand and Institutional Supply 30
Institutional Inertia and Disruptive Events 35
vii
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viii CONTENTS
Offshore Currencies and International Liquidity 36
Current International Reactions to the RMB’s Rise 41
RMB Internationalization 44
Conclusion 46
References 47
CHAPTER 3
Economic and Institutional Foundations for the Rise
of the RMB 49
Economic Foundation 49
Surprises 58
New Growth Engines 60
Capital-Account Liberalization 62
Institutional Quality 68
Conclusion 80
References 81
CHAPTER 4
Can the Chinese Bond Market Support a Potential Global
Renminbi? 83
Overview of the Chinese Bond Market 84
Chinese Treasury Market in International Perspective 91
A Dilemma and a Bold Public-Debt Consolidation Scheme 98
Government-Backed Debt Securities 103
Conclusion 107
References 107
CHAPTER 5
Waxing and Waning of the Chinese Stock and Banking
Markets 109
Chinese Stock Market: Growing Despite Immaturity
Flaws 109
A Massive Chinese Banking Market Opening 125
Conclusion 133
References 133
CHAPTER 6
Rising FX Turnover of the RMB 135
Could the Market Accommodate More Global Currencies? 135
What Determines the FX Liquidity of the RMB? 138
