Chinese Domestic Politics and the Internationalization of the Renminbi

Who has been in the driving seat promoting internationalization of the Chinese renminbi? Why has this actor been pushing it? How has the project managed to acquire support from other domestic actors? This study addresses these issues, highlighting the leading role of the Chinese central bank in renminbi internationalization. At first glance the bank’s active advocacy of renminbi internationalization seems puzzling, since many studies point to a decline in the effectiveness of the central bank’s monetary policy as one major cost of its currency’s internationalization. This research argues, however, that the Chinese central bank’s strong support for renminbi internationalization is in fact linked to its goal of strengthening its monetary policy effectiveness, through the domestic financial reforms necessitated by renminbi internationalization. This study also demonstrates that the opposition to renminbi internationalization from other major domestic actors has been limited, as it has benefited them. These findings provide a novel analysis of the Chinese domestic politics surrounding renminbi internationalization. This research also contributes significantly to the literature on currency internationalization overall, by shedding new light on the role of the central bank in the domestic politics of currency internationalization, as well as by reassessing the benefits and costs of currency internationalization.