The Rise of Chinese Currency and Policy Limitations
Authors:   Asia-Europe Perspective Association, Yoon Sungwook , Shin Jiyeon 
Published: June 2018

As China’s international status has increased, its growth is particularly prominent in the economic sector. Although there has been a recent slump, China is now having a strong influence in terms of production and consumption. In particular, the successful establishment and launch of the Asia Infrastructure Investment Bank(AIIB) and the ambitious promotion of ‘One-Belt, One Road’ policy makes China continue to pursue its policy towards the world economy.
As China’s economic and political status rises, it is already working on making its own currency, the yuan, into an international key currency like the US dollar. This is to expand the influence of China in financial markets around the world by realizing the “currency rise” following the “economic rise”. Indeed, it is true that China’s rapid economic growth and emergence as a powerful country have further heightened the possibility and expectation of the internationalization of the Chinese yuan. Also, after the inclusion of the yuan into the SDR regime, China is considered as one step closer to the currency rise. Nonetheless, there has been controversy about the possibility of being an international currency - whether the Chinese Yuan could be comparable to the dollar, even if it cannot replace the dollar.
In order for the Chinese yuan to become an international currency, the scale of the Chinese economy must have a considerable influence, and there is no question that the world market must have sufficient confidence in the value of the Chinese yuan. It is also necessary to create a free and transparent financial market environment for foreign exchange and capital transactions. In fact, the Chinese government has pursued political and economic cooperation and reform and opening policies to fulfill its functions as an international currency. However, many studies have argued that the yuan does not seem to be able to perform the same role as the dollar in international financial markets. In this regard, previous studies have explored the limitations of internationalization of the yuan by analyzing the economic conditions or policy aspects for the internationalization of the yuan. In other words, analysis on the rules and regulations for the operation of related systems have been overlooked, while previous research has focused on conditions and policies for the internationalization of the RMB from a relatively macro perspective.
Therefore, this study will examine the possibility and limit of the internationalization of the yuan by analyzing the detailed contents and regulations of the relevant policies and institutions in China for internationalization of the yuan. First, we will examine China’s financial marketization and liberalization policies after the establishment of the socialist market economy system, and examine various measures for internationalization of the yuan. In particular, it identifies concrete problems related to the payment system (CIPS) and capital account freedoms that have been developed to improve the off-shore trade conditions and expand the use of the yuan. At the same time, indicating concerns over excessive or radical financial openness for the internationalization of the yuan, as well as the fundamental problems of designing the Chinese financial system, this research points out the limitations of the current risk management, and thus argues the necessity of continuous policy and legislative reforms for the internationalization of the yuan. The cases discussed in this research and the contents of the law that support our claims can be used as a concrete basis for explaining the limitation of the internationalization of the yuan that the previous studies have not dealt with. In other words, this study identifies the more fundamental causes of the limitations of the internationalization of the RMB by analysing the institutional limits and the insufficiency of laws to support such institutions.