Global currencies Life cycle USD Renminbi Network externalities

It appears that the objective of the internationalization of the Renminbi (requiring convertibility) and the authoritarian credit allocation mechanism within China conflict with each other. If China pursues its ambition to make the Renminbi an international currency the authorities will have to abandon their ambition to control the domestic allocation of credit. It is unclear today how the Chinese authorities wish to resolve this conflict. It seems to me that they are more likely to continue to pursue domestic financial control. As a result, it is unlikely that the Renminbi will challenge the dollar as an international currency soon. I also conclude that the future clash between the dollar and the Renminbi is not something to be expecting soon.



Paul De Grauwe

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