Globalization of the Yuan: A Tough Question for Regulators
The global financial system and its regulatory environment are now facing an unprecedented difficulty: the unnatural internationalization of the Chinese currency Yuan. Even financial and securities regulation scholars and experts like Chris Brummer recognize this unprecedented complication, and they're studying the viability of the approach China is taking toward internationalizing its currency. China is obviously not playing by traditional financial regulations, making it important to probe all possible outcomes as well.
For many of years, scholars and market stakeholders have reasoned that, although it's useful to have fiscal and monetary policy, the internationalization of any currency is only viable after domestic financial markets that prop it have sufficient depth and under adequate regulation. After a country has fulfilled those conditions and it has a large economy that's significantly incorporated into the global system, oversea investors may take interest in the currency. Yet, the reforms China is trying to force into the system toward globalizing its currency is unique to history and violates what you may hold as the prerequisites of the law and macroeconomic doctrines.
No doubt China is not walking the same path of following regular policy protocols. Chinese authorities prefer not prioritize strengthening of its regulatory infrastructure and having its Yuan follow a natural course to international utility and appreciation: they're leading the advancement and management of the internationalization efforts. The story of the Renminbi is not that of organic maturity, instead, it's penetration overseas is uniquely supported through market pacts and financial associations that usually advance it via financial environments and organizations that predominantly use the Chinese currency overseas. All this time, the authorities have pushed policy reforms that focus on market access and liberalization instead of improvements of prudential and supervisory oversight. Consequently, there are concerns over increased use of capital manipulations to manage risks as well as attract competition among players hosting Renminbi markets.
The never-seen-before Chinese policy ingredients pose numerous important questions that substantially impact international financial and monetary stability. For starters, can a currency internationalization process spearheaded by the government work, and if yes, what risks does the financial system face? Secondly, up to what point is it okay for market liberalization override regulatory upgrade, and are capital controls sufficient alternatives to prudential safeguards? Another issue that needs to be investigated is the possible risks and benefits associated with highly-controlled pools of liquidity for international finance. You can also learn more tips on where to find the best finance, visit http://www.huffingtonpost.com/robert-mauterstock/what-is-your-financial-ad_b_13897866.html.
If the global financial system will be shaken by China's policy toward pushing its currency Renminbi into broad international acceptances and use, Chris Brummer is among many fiscal and securities policy experts advocating for an urgent solution right now.