Underdevelopment of the Financial Market in China as a Barrier to the Internationalization of the Renminbi

Abstract

Purpose: The Chinese economy is one of the largest and the fastest growing economy in the modern world. The importance of the renminbi as an international currency is not relevant to China’s economic potential and role in the global economy. This fact encouraged the author to explore barriers limiting the position of the renminbi as an international currency. The aim of the paper is to assess the development of the Chinese financial market and its liquidity conditions from the perspective of their impact on currency internationalization. Methods: The study includes theoretical and empirical research. A descriptive comparative analysis has been used to assess the development of the financial market in China in comparison with other economies (contemporaneously and historically) and to evaluate the renminbi’s role in the main functions of international currency using the Cohen matrix. Results and conclusions: The author confirmed the research hypothesis that one of the important constraints for the renminbi internationalization is the relatively shallow and underdeveloped financial market in China.