by Yukon Huang, Clare Lynch
September 18, 2013
With China’s return to the position of largest global trader and second-largest economy in the world, it is not surprising that discussion of internationalizing China’s currency has resumed. While internationalization carries long-term benefits such as heightened prestige and influence, greater say in the international system, and improved trade efficiency, there are also increased risks—namely, more volatility, increased exposure to external shocks, and potential loss of control over domestic monetary policy. A critical examination of these objectives along with the necessary preconditions shows that internationalization is neither feasible nor necessarily beneficial in the short term. Overall, as China moves forward on financial liberalization, leaders should set aside the question of internationalization and consider whether these key reforms are beneficial for China’s economy in their own right.