The Yuan's Internationalization and the Establishment of Money and Bond Markets in China
15 Pages Posted: 30 Jun 2010
Date Written: June 29, 2010
Abstract
The lifting of China's capital controls is an essential component of the process of globalizing the yuan. As China liberalizes its capital accounts, it will need to further liberalize interest rates and shift to indirect macroeconomic controls, primarily open market operations. The depth of money and bond markets is a prerequisite to ensuring the central bank's ability to engage in open market operations, and also necessary to absorb the impact from capital inflows and outflows. In addition, deep and liquid money and bond markets would provide a means for overseas investors to invest their yuan holdings. In preparation for the liberalization of capital and interest rates, the authorities have moved fast to establish short-term money markets and bond markets, and their efforts to improve those markets over the last few years should not be overlooked.
Keywords: China, Financial market, yuan internationalization
JEL Classification: E44, E58, G10
Suggested Citation: Suggested Citation
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