| Summary: | Eswar Prasad's study analyzes three related but distinct concepts concerning the role of China's renminbi in the global monetary system: (i) "internationalization" of the currency; (ii) currency convertibility; and (iii) reserve currency status. Their sequencing in relation to other policy goals such as financial sector reforms and exchange rate flexibility will affect their benefit-risk tradeoffs. Prasad describes the measures taken and progress attained in each of these areas and discusses the implications of these changes in relation to the balance and sustainability of China's own economic development as well as the associated implications for the global monetary system. While China is actively promoting the internationalization of its currency, it is a long way from attaining full convertibility or meeting other prerequisites for achieving reserve currency status. Ultimately, China will proceed with capital account convertibility in its own controlled and gradual manner, with the goal being an open capital account but with significant administrative and other "soft" controls. Prasad concludes that the renminbi will play an increasingly important role in the international monetary system but is unlikely to displace the U.S. dollar anytime soon.
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