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Economists: RMB internationalization good for U.S., global economy

Jing Zhao Feb 7, 2012

Economists: RMB internationalization good for U.S., global economy

Jing Zhao Feb 7, 2012

There is fear that China’s currency, the RMB, is going to overtake the U.S. dollar as the world’s most important currency. Experts from the Brookings Institution say that, actually, the internationalization of the RMB is good for the U.S. and world.

On February 7, Brookings hosted the launch of a new report “The Renminbi’s Role in the Global Monetary System.” Brookings senior fellow Eswar Prasad, the report’s author, discussed the impact of the RMB becoming a more international currency, along with Brookings senior fellow Donald Kohn and Stephen Roach, a senior lecturer and fellow of the Jackson Institute at Yale University.

In the report, Prasad points out that China is loosening restrictions on money flowing in and out of the country. And China is promoting the international use of its currency. He predicts that the RMB will become a reserve currency — allowing central banks around the world to hold it in large amounts — within 10 years. “The RMB’s internationalization will erode the dollar’s dominance, but not displace it,” he said.

Does that hurt the U.S.? Kohn said it is in the U.S. and the global economy’s interests that China continue to progress with the RMB internationalization. The U.S. should encourage China to proceed, he said.

According to Kohn, the most important requirement for the international use of the RMB is an open financial market in China. That will provide investors with more choices and also open the ability to trade with the Chinese market. That will produce better profit growth and better allocation of capital globally.

“Internationalization of the RMB is a win-win,” he said.

Roach said what worries him is that both Republicans and Democrats view China as a threat. “I think we should reframe the international use of RMB as an opportunity,” said Roach.

“The U.S. needs a new source of growth, exports are a critical opportunity for the U.S.,” he said. “China is our third largest and by far the most rapid growing export market. That is the opportunity to convert a U.S.-China relationship into a huge win for American workers.”

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