Writing about China is fraught with dangers. The country is not known for its transparency, and its economy is evolving rapidly. And yet, as China becomes an increasingly accepted partner not only in global trade but in global financial markets as well, western policymakers, investors, and businessmen crave solid analysis. It is particularly important to understand the role of China’s currency in the global monetary system so that we don’t succumb to what Stanley Druckenmiller called, referring to Donald Trump’s erroneous claim that “China is manipulating their currency and holding it down,” “a kindergartner … view of economics.”
In Renminbi Rising: A New Global Monetary System Emerges (Wiley, 2016) William H. Overholt, Guonan Ma, and Cheung Kwok Law present a carefully documented analysis of the burgeoning role of the RMB in the world economy. (And they finished their book before the IMF decided to include the RMB in its special drawing rights basket, which further elevates the importance of the Chinese currency.)
The authors discuss, among other things, the economic and institutional foundations for the rise of the RMB, whether the Chinese bond market can support a potentially global RMB, the waxing and waning of the Chinese stock and banking markets, the liquidity of the RMB, the spreading global network for RMB trade, businesses uses of the RMB, and the RMB as a reserve currency. They illustrate their points with numerous charts and graphs.
Renminbi Rising is valuable not only for its meticulous research but also for its investigation of alternative scenarios. It’s a must read for anyone who wants to understand China’s place in the world’s financial system.