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The political economic logic of RMB internationalization: A study in Sino-capitalism

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Abstract

Over the past 7 years the Chinese government has begun in earnest a gradual process of seeking a more internationalized currency. By conceptualizing China’s domestic political economy as having generated Sino-capitalism, this article utilizes a ‘second image’ explanation to elucidate the logic of RMB internationalization policies. Therefore, rather than focusing on international incentives and constraints as they affect RMB internationalization the aim is to trace the origins of China’s unique policy stance with historical institutional analysis. The article begins with conceptualizing the domestic logic of Sino-capitalism and then highlights key aspects of Sino-capitalism’s institutional arrangements and policy approaches as they shape RMB internationalization. The article ends with arguing that the basic institutional logic and policy stances of Sino-capitalism are here to stay. With regard to RMB internationalization this indicates that full-scale liberalization measures, especially of China’s capital account, are unlikely to be undertaken in the near future. However, Sino-capitalism’s logic opens up new avenues by which China, as it becomes an ever larger part of the global political economy, could gradually foster an international currency.

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Notes

  1. The two designations of Chinese yuan and renminbi (the people’s currency) are used interchangeably when referring to China’s currency; it was trading at approximately 6.15 per US dollar in late 2014.

  2. Anglo-American capitalism constitutes a generic form of capitalism based on liberal market economies with minimal state involvement in the allocation of goods and services (see Hall and Soskice, 2001).

  3. Bricolage refers to institutional change within the confines of path dependency. It designates incremental and tentative efforts at repairing institutions within a certain path that ultimately end up changing that path, a common occurrence in Chinese reform efforts (Campbell, 2004, pp. 69–74). Similarly, Chinese reform processes reveal many instances of institutional layering and displacement, contributing to the prevalence of transitional and hybrid institutional arrangements (cf. Streeck and Thelen, 2005).

  4. Kenen (1983) and Chinn and Frankel (2005) lay out the basic preconditions for fostering an internationally accepted reserve currency.

  5. Japan only started to actively internationalize the yen in the 1980s as it already had reached advanced industrial status (Eichengreen, 2011, p. 45). Moreover, Japanese efforts to create a wider international role for the yen were not very successful (Grimes, 2009), thus boding badly for China’s proactive initiatives to internationalize the RMB (Cohen, 2012). See also the contribution on China’s capital controls in this special issue by Dierckx.

  6. For crucial factors not highlighted here see the contribution in this special issue by Otero-Iglesias and Vermeiren.

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  1. Chaminade University, Henry Hall 208F, 3140 Waialae Ave, Honolulu, 96816, Hawaii, USA

    Christopher A McNally

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McNally, C. The political economic logic of RMB internationalization: A study in Sino-capitalism. Int Polit 52, 704–723 (2015). https://doi.org/10.1057/ip.2015.15

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