One Currency, Two Markets: China’s Attempt to Internationalize the Renminbi

This was the second event in the 14th annual Conference on China’s Economic Development and U.S.-China Economic Relations. This year, the conference takes place as a virtual series. This conference is co-sponsored by the Sigur Center for Asian Studies and the GW Center for International Business Education and Research (GW-CIBER).

This event featured HKU’s Edwin Lai to discuss his recent book titled “One Currency, Two Markets: China’s Attempt to Internationalize the Renminbi.” The Economic Research Institute for Northeast Asia (ERINA) Representative Director Dr. Masahiro Kawai provided discussant remarks. In this book, Edwin Lai discusses economic analysis of the future of the international monetary system and the USD, and the rising importance of the RMB. He points out the unsustainability of the dollar standard in the long run, that China has unique incentives to internationalize its currency, and how Hong Kong plays an important role. He explains the real reasons for China to internationalize its currency, including using external commitments to force financial sector reforms (‘daobi’ in Chinese). His book applies economic theories accessible to laymen to establish that financial development and openness are crucial for RMB internationalization to succeed, and that greater exchange rate volatility is inevitable due to the ‘open-economy trilemma’. Employing the ‘gravity model’, the book predicts quantitatively that the RMB is likely to be a distant third payment currency after the USD and the euro, but surpassing the Japanese yen in the next decade.

IIEP Director Jay Shambaugh and Elliott School Vice Dean James Foster provided welcome and introductory remarks. Barbara Stallings moderated the event. James Foster introducde Edwin Lai and Barbara Stallings introduced Dr. Masahiro Kawai.

About the Speaker:

Edwin Lai is Professor of Economics at the Hong Kong University of Science and Technology since July 2009, and later jointly appointed as the Director of the Center for Economic Development and jointly appointed as Professor in the Division of Public Policy. He was Senior Research Economist and Adviser at the Federal Reserve Bank of Dallas of the Federal Reserve System of the USA, from August 2007 to June 2009. Before that he was Assistant Professor at Vanderbilt University, Associate Professor at City University of Hong Kong and Associate Professor at Singapore Management University. His main research areas are international economics, industrial organization, growth and internationalization of renminbi. He is a leading scholar in the study of intellectual property rights in the global economy. He has published in American Economic Review, RAND Journal of Economics, International Economic Review, Journal of International Economics and other highly respected journals in economics.

Prof. Lai has been a consultant to the World Bank, visiting scholar/fellow with Boston University, Princeton University, Kobe University, CESifo (University of Munich), Hitotsubashi University, and Hong Kong Institute for Monetary Research. He is Associate Editor of Review of International Economics (Wiley Publisher), a Fellow of the CESifo Research Network (U of Munich), and a board member of Asia-Pacific Trade Seminars (APTS) Group. He obtained his B.Sc. in engineering from the University of Hong Kong of Science and Technology and A.M. and Ph.D. in economics from Stanford University.

About the Discussant:

Dr. Masahiro Kawai is the Representative Director of the Economic Research Institute for Northeast Asia (ERINA) in Niigata, Japan. While teaching Asian finance at the University of Tokyo as Professor Emeritus, he also serves as a Councilor of the Bank of Japan, a Senior Fellow of the Policy Research Institute of Japan’s Finance Ministry, and a Distinguished Research Fellow of the Japan Forum on International Relations. Dr. Kawai has published numerous books and articles on open-economy macroeconomics, economic and financial globalization, regional economic integration in Asia, and the international monetary system. He co-edited a book with Barry Eichengreen, entitled Renminbi Internationalization: Achievements, Prospects, and Challenges (Brookings Institution Press, 2015).

Previously, Dr. Kawai held positions as: Dean of the Asian Development Bank (ADB) Institute; Special Advisor to the ADB President in charge of regional economic cooperation and integration; Deputy Vice Minister of Finance for International Affairs and President of the Policy Research Institute of Japan’s Ministry of Finance; Chief Economist for the World Bank’s East Asia and the Pacific Region; a Professor of Economics at the University of Tokyo and an Associate Professor of Economics at The Johns Hopkins University; and a Research Fellow at the Brookings Institution.

He graduated with his B.A. degree in Economics from the University of Tokyo’s Economics Department. He earned his M.S. degree in Statistics and Ph.D. degree in Economics from Stanford University.

About the Moderator:

Barbara Stallings is William R. Rhodes Research Professor at the Watson Institute for International Studies at Brown University and editor of Studies in Comparative International Development. She is also a Distinguished Visiting Scholar at the Institute for International Economic Policy at George Washington University. Before arriving at Brown in 2002, she was director of the Economic Development Division of the UN Economic Commission for Latin America and the Caribbean in Santiago, Chile (1993–2002), and professor of political economy at the University of Wisconsin–Madison (1977–1993). She has doctorates in economics (University of Cambridge) and in political science (Stanford University) and is a specialist in development economics, with an emphasis on development strategies and international finance. In addition, she works on issues of economic relations between Asia and Latin America and comparisons between the two regions. Her recent books are Innovation and Inclusion in Latin America: Strategies to Avoid the Middle Income Trap (2016) and Promoting Development: The Political Economy of East Asian Foreign Aid (2017). Her most recent book, Dependency in the Twenty-First Century?: The Political Economy of China-Latin America Relations (2020), was selected as one of Foreign Affairs’ best books of 2020. She has taught at various universities in China and elsewhere in Asia; currently she is a distinguished visiting professor at the Schwarzman Program at Tsinghua University in Beijing.

Welcome and Introductory Remarks:

Jay Shambaugh is Professor of Economics and International Affairs, and Director of the Institute for International Economic Policy at the Elliott School of International Affairs, George Washington University. His area of research is macroeconomics and international economics. He has had two stints in public service. He served as a Member of the White House Council of Economic Advisors from 2015-2017. Earlier, he served on the staff of the CEA as a Senior Economist for International Economics and then as the Chief Economist. He also spent 3 years as the Director of the Hamilton Project at the Brookings Institution. Jay is also a Faculty Research Fellow at the NBER and Non-Resident Senior Fellow in Economic Studies at Brookings. Prior to joining the faculty at George Washington, Jay taught at Georgetown and Dartmouth and was a visiting scholar at the IMF. He received his Ph.D. in economics from the University of California at Berkeley, an M.A. from the Fletcher School at Tufts, and a B.A. from Yale University.

James E. Foster is the Oliver T. Carr, Jr. Professor of International Affairs, Professor of Economics, and Vice Dean of the Elliott School of International Affairs. He is also a Research Associate at the Oxford Poverty and Human Development Initiative at Oxford University. Professor Foster’s research focuses on welfare economics — using economic tools to evaluate and enhance the wellbeing of people. His work underlies many well-known social indices including the global Multidimensional Poverty Index (MPI) published annually by the UNDP in the Human Development Report, dozens of national MPIs used to guide domestic policy against poverty, the Women’s Empowerment in Agriculture Index (WEAI) at USAID, the Gross National Happiness Index of Bhutan, the Better Jobs Index of the InterAmerican Development Bank, and the Statistical Performance Index of the World Bank. Prof. Foster received his PhD in Economics from Cornell University and has a Doctorate Honoris Causa from Universidad Autonoma del Estado Hidalgo (Mexico).