Internationalizing Like China

Clayton, Christopher; Santos, Amanda dos; Maggiori, Matteo; Schreger, Jesse

doi:10.2139/ssrn.4184323

Cited by 2 publications

(3 citation statements)

References 56 publications

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“…13 Clayton et al (2022) point out that one of the reasons China is liberalizing access to its domestic bond market and also letting some domestic capital go abroad it to create two-way liquidity in RMB bonds that can serve as a store of value to complement the payment system (means of payment). This captures a strategic complementarity in use of either input among firms within sector i n .…”

Section: Financial Services Strategic Complementarities and Fragmenta...mentioning

confidence: 99%

A Theory of Economic Coercion and Fragmentation

Clayton,

Maggiori,

Schreger

2024

Preprint

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Global powers, like the United States and China, exert influence on other countries by threatening the suspension or alteration of financial and trade relationships. We show that the mechanisms that generate gains from integration and specialization, such as external economies of scale, also increase these countries' power to exert economic influence because in equilibrium they make other relationships poor substitutes for those with a global hegemon. We study how smaller countries can insulate themselves from geoeconomic pressure from the great powers by pursuing anti-coercion policy. We show that while an individual country can make itself better off, uncoordinated attempts by multiple countries to limit their dependency on the hegemon lead to unwinding the global gains from integration and fragmenting the global financial and trade system. Countries resort to inefficient home alternatives, the more so hegemons are expected to want to exert their influence in disruptive ways. An integrated liberal world order emerges as an equilibrium when the hegemon's incentives are well aligned with the world economy, politically and economically. Generically, the world economy fragments along political and economic alignments. We study a leading application focusing on financial services and payment systems as both a tool of coercion by the hegemon and an industry with strong strategic complementarities at the global level.

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Section: Financial Services Strategic Complementarities and Fragmenta...mentioning

confidence: 99%

A Theory of Economic Coercion and Fragmentation

Clayton,

Maggiori,

Schreger

2024

Preprint

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“…The Chinese authorities have pursued a strategy of gradually opening the capital account. They have deliberately liberalized the entry of foreign investors into the market, first enhancing access for relatively stable long-term investors such as central banks before allowing in flightier investors, such as mutual funds (Clayton et al, 2022). Launch of the Shanghai-Hong Kong Stock Connect and the Shenzhen-Hong Kong Stock Connect programs in 2014 and 2016 gave authorized offshore investors simplified access to Chinese equity.…”

Section: Rmb Internationalization With Chinese Characteristicsmentioning

confidence: 99%

“…In January 2022, foreigners held about 11% of the central government Treasury bond market, up from less than 3% in January 2016. As of 2020, an estimated USD 100 billion worth of Chinese bonds was held by private investors, mainly from the euro area, the United States and Japan (Clayton et al, 2022). 16 Despite this increased participation of private investors, however, central banks remain the most important investors in RMB bonds, with reserves of nearly USD 300 billion equivalent in that form.…”

Section: Rmb Internationalization With Chinese Characteristicsmentioning

confidence: 99%

Currency internationalization with Chinese characteristics: Is capital‐account convertibility required for the renminbi to acquire reserve‐currency status?

Eichengreen,

Macaire,

Mehl

et al. 2024

International Finance

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It is widely assumed that the renminbi (RMB) cannot acquire a meaningful place in central bank reserve portfolios without full liberalization of China's capital account. We argue that the RMB can in fact develop into an international reserve currency in the absence of capital‐account convertibility. Trade and investment links can drive use despite limited access to Chinese financial markets. But this route to currency internationalization requires policy support. China must provide access to RMB through loans and the People's Bank of China (PBoC) currency swaps. It must ensure the convertibility of RMB into US dollars in offshore markets. It must provide RMB services at a stable and predictable price. Currency internationalization without full capital‐account liberalization thus requires the RMB to be backed by dollar reserves, which the PBoC consequently will continue to hold and use. Hence, we do not foresee RMB internationalization as supplanting dollar dominance.

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Internationalizing Like China

Cited by 2 publications

References 56 publications

A Theory of Economic Coercion and Fragmentation

A Theory of Economic Coercion and Fragmentation

Currency internationalization with Chinese characteristics: Is capital‐account convertibility required for the renminbi to acquire reserve‐currency status?

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