Date: 25 Oct 2022 (Tue)
CUHK-Tsinghua University Brownbag Seminar:
Dual Approach for One Goal: The Internationalization of Renminbi during 2011-2021
25 Oct 2022, Tuesday
12:20 pm – 1:20 pm (Hong Kong Time, UTC+8)
Jiatong NIU, Tsinghua University
The last decade has witnessed China's policy reform toward building a global currency and the accelerated process of renminbi internationalization. We provide a quantitative assessment of the effects of these policies using a dynamic general equilibrium model. The model incorporates key functions of an international currency serving both as a store of value and a medium of exchange. Due to the complementarity between different functions, combined policies that simultaneously address frictions in the international asset market and trade market are more effective than policies with a single focus, so the dual-approach reform adopted by Chinese government has been largely optimal. Quantification of the model reveals that (1) China's reform in the past decade has lowered the return wedge for renminbi bonds by 3.41%, and lowered the revenue wedge in renminbi-settled trade by 1.18%; (2) the reform has increased households' welfare by 0.023%; (3) had the reform been targeting the renminbi payment share by only addressing frictions in international trade market, the cost of the reform would be 1.48 times larger.
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