IMF Podcasts Eswar Prasad on the Curious Rise of the Renminbi
Jul 21, 2017
Eswar Prasad, Professor of Trade Policy at Cornell and Senior Fellow at the Brookings Institution, discusses the complex journey of the renminbi as it vies for global prominence. He highlights the historical milestones in China's currency and the challenges it faces without crucial domestic reforms. Delving into the renminbi's role since its IMF inclusion in 2016, Prasad examines the effects of China's closed capital account and the hurdles in communication faced by its central bank. Ultimately, he questions whether the currency's growth reflects real economic strength or strategic ambitions.
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China's Early Paper Currency History
- China issued the first paper currency backed by precious metals in the 7th century during the Song dynasty.
- Under Kublai Khan, China had the first fiat paper currency made legal tender by imperial decree, enforced by threatening death to non-acceptors.
Renminbi's Emerging Global Role
- The renminbi accounts for about 3% of cross-border payment settlements despite China's closed capital account and controlled exchange rate.
- This presence is impressive given these constraints and China's status as an emerging market.
Renminbi Becomes IMF Reserve Currency
- The IMF included the renminbi in the SDR basket as the first emerging market currency to achieve this status.
- Numerous central banks worldwide now maintain bilateral swap lines with China, allowing RMB liquidity access.
