Due to the 2008-2009 global financial crisis, the Chinese government began to promote renminbi (RMB) internationalization in order to raise its international status, decrease reliance on the US dollar and advance domestic structural reform. This internationalization has achieved progress not only in cross-border trade settlement, but also in the offshore RMB markets. However, the rampant cross-border arbitrage and the relatively slow development of RMB invoicing compared to RMB settlement are becoming increasingly problematic.

RMB internationalization has exerted significant influence on not only the Chinese economy but also other emerging market economies. It complicates domestic monetary policy, exacerbates the currency mismatch on China’s international balance sheet, increases both the scale and volatility of short-term capital flows, and offers emerging economies another alternative for pricing domestic currency and investing foreign exchange reserves. Its overall impact on the international monetary system’s stability will depend on how the capital account is liberalized and the consistency and transparency of Chinese monetary policy.

This paper concludes with five recommendations for Chinese policy makers to promote RMB internationalization in a sustainable way that is conducive to international stability, ranging from RMB internationalization and capital account liberalization being carried forward under appropriate policy sequencing, to the People's Bank of China clarifying its monetary policy objectives, to the Chinese government carrying forward the reforms on legal, political and administrative systems to boost long-term confidence in the RMB.

These papers are an output of a project that aims to promote policy and institutional innovation in global economic governance in two key areas: governance of international monetary and financial relations and international collaboration in financial regulation. With authors from eight countries, the 11 papers in this series will add to existing knowledge and offer original recommendations for international policy cooperation and institutional innovation.