China's Engagement with an Evolving International Monetary System: A Payments Perspective

September 25, 2014

China’s integration into the international monetary system (IMS) has been a complex, evolving story with many angles and aspects. Some are specific to steps that China has taken, or has planned, involving reforms both domestically and internationally. Others are specific to the overall functioning of the IMS, where the policies of all major economies have a bearing on the manner and efficiency of adjustment in the international flow of goods, services and portfolio investments. Much has been written on all of this. The approach taken in this report is of a different slant — one that looks at these issues from the perspective of the IMS as a payments system. A payments approach has two distinguishing features, which provide a new perspective on how to think about the practical and policy issues facing China, and are central to the functioning of today’s IMS.

The core of this report, co-published by CIGI and the Institute for New Economic Thinking, is to lay out in practical terms the critical issues China must consider in managing its engagement with the evolving IMS. There are both opportunities and pitfalls, and the hope is that the payments approach used will highlight why, and how, China and the IMS should “talk to one another.” This must be a two-way dialogue. While the pace, direction and ultimate goals of reform are for the Chinese to decide, what they decide will have implications going both ways — for them and for the functioning of the IMS. Avenues must be found to discuss and assess these implications from a system-wide, cooperative perspective.

About the Authors

Paul Jenkins is a CIGI distinguished fellow. He contributes expertise on international policy coordination and financial stability, with a particular interest in the Group of Twenty. Previously he served as senior deputy governor of the Bank of Canada.

Thomas A. Bernes is a CIGI distinguished fellow. After an illustrious career in the Canadian public service and at leading international economic institutions, Tom was CIGI’s executive director from 2009 to 2012.

Perry Mehrling is the director of Education Programs for the Institute for New Economic Thinking. Perry has been professor of economics at Barnard College since 1987. He teaches courses on the economics of money and banking, the history of money and finance, and the financial dimensions of the US retirement, health and education systems.

Daniel H. Neilson is an economist at the Institute for New Economic Thinking whose expertise is centred on money, the financial system and their role in the macroeconomy.