Can China Internationalize the RMB?

Lessons From Japan

A woman holds 100-RMB notes at the Bank of China tower in Hong Kong, February 2016. Bobby Yip / Reuters

The jury is still out on whether the Chinese renminbi (RMB) will displace the U.S. dollar in the foreseeable future. What is clear, however, is that challenging a hegemonic currency is not simple. For the RMB to eventually reign supreme, not only would the Chinese leadership, particularly the country’s monetary authority, need the political will to prioritize the internationalization of its currency over concerns with domestic stability, it would also have to gain the support of the financial markets and other economic and political players. All that is easier said than done.

The recent history of how the Japanese yen tried and failed to become the dominant international currency provides a good illustration of the challenges. By the late 1980s, the world had started to see Japan’s economic power and its currency, the yen, as a major competitor to the U.S. economic order. But Japan was

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