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Internationalizing the Currency while Leveraging Massively: The Case of China

Alicia García-Herrero Senior Research Fellow, Bruegel ; chef économiste pour la région sie-Pacifique, Natixis. Contact :

This article reviews the steps that China has taken towards financial reform with particular attention to capital account liberalization and internationalizing the use of the Renminbi (RMB). After a slowdown in the reform momentum during the global financial crisis, there is a clear push towards reform, especially as regards RMB internationalization. During the same period, though, China’s debt has doubled reaching levels which are clearly above those of most emerging markets. This clearly increases the risks imbedded in financial reform and, in particular, capital account liberalization. At this juncture, though, China has no option but to press for reform since it will allow China to better allocate its savings notwithstanding the cost of accepting a higher equilibrium interest rate, especially for the borrowers.

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