Letter: China’s monetary ambitions are limited by its trade policy

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Michael Hasenstab’s argument (Markets Insight, April 15) that China’s adoption of a central bank digital currency will be a driving force behind the renminbi’s rise as a reserve currency fails to mention the elephant in the room: capital account restrictions.

As he rightly asserts, currencies are more prized as reserve assets when they are widely used in international transactions. The Chinese currency is clearly not, at the moment, and long-standing controls on capital flows are one of the main reasons.

The exact duration of these restrictions is a matter of debate. What is clear, however, is that the Chinese authorities would have to relinquish significant control over their exchange rate and / or relinquish much of their autonomy in determining monetary policy if they were to open the capital account of China. the economy. The current importance of exports for growth and self-sustaining monetary policy for controlling domestic financial risks suggests that China’s political preferences will not change anytime soon, regardless of the development of a CBDC.

There is no doubt that the international importance of the renminbi will continue to grow, but we should not confuse the operational ease and advanced surveillance offered by the CBDCs with the lack of compromise on external sector policies. Unlike their decentralized counterparts, they will always be attached to the sovereign states from which they originate.

John marrett
Asia Country Risks Department Manager
The Economist Intelligence Unit
Hong Kong

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