The Costs of Globalization in China By: Charly Jaffe March 15, Globalization has clearly done a great deal for China. This resulted in unprecedented growth and allowed hundreds of millions of people to escape from poverty.
The renminbi as a global currency?
Of course, growth in trade share alone does not automatically make it attractive for countries to use the currency of the trading partner as the currency through which transactions are traded or in which assets are held.
This was for a number of reasons: In the s and s, Japan tried to internationalise its currency, and the use of the yen in trade settlement and in foreign exchange transactions rose because of important reforms that led to opening of the Japanese capital account.
In fact, since June when the renminbi resumed its flexibility against the US dollarthe number of currencies tracking the renminbi has increased compared to the earlier period of flexibility between July and East Asia, Subramanian and Kessler suggest, is now a renminbi bloc because the currencies of 7 out of 10 countries in the region — including South Korea, Indonesia, Taiwan, Malaysia, Singapore and Thailand — track the renminbi to a greater extent than the US dollar.
For example, since the middle ofthe Korean won and the renminbi have appreciated by similar amounts against the US dollar. In contrast, only three economies in this group — Hong Kong, Vietnam and Mongolia — still have currencies that follow the US dollar more closely than the renminbi.
The rise of the renminbi as a reference currency is not confined to East Asia. While it is still dominated by the US dollar as a global reference currency, this too, Subramanian and Kessler point out, is changing.
For example, the renminbi moves more closely with the national currencies of India, Chile and South Africa than any other in the latest period, and comes second in Israel and Turkey. An international currency is also distinguished, like the US dollar, by its use as a reserve asset and its widespread use in international transactions.
Some predict that the full internationalisation of the renminbi could happen in the next two decades — but China will need drastic reforms of its capital account and of its domestic financial system before it acquires that global status. But if China accelerates its financial and capital account reforms, this could happen much more quickly.There has been contentious debate surrounding the issue of undervaluation of the Chinese Renminbi, with continuous international political pressure on China to appreciate its currency and the Chinese government resisting significant changes in its policy.
Chinese Currency Internationalization China is the second largest economy in the world. The Chinese government has undertaken a process to liberalize and internationalize its currency, relaxing rules to become more equal trading partners with other developed countries.
China’s impact is particularly strong in East and Southeast Asia, but the degree to which this impact is on balance a positive one depends on the relative development of the trading partner in question.
After analyzing the relationship of China-the US trade and exchange rate of RMB, Chou () found that the fluctuation of real exchange rate of RMB to dollar will bring China's export to the US a negative effect, that is, the export will decrease when there is .
Nov 20, · The renminbi is already a major currency for world trade and investment, and accounts for a growing share of international financial transactions and reserve holdings.
To qualify for inclusion, the Chinese government has eased its capital controls and liberalized its financial markets considerably. If Wal-Mart were a country then it would be China’s eighth largest trading partner ahead of Russia, Australia, and Canada.
Wal-Mart’s non-Chinese owned suppliers operating in China number nearly 5, and all of them benefit from a low valued yuan compared to the dollar.