October 2011

The recent rapid growth of the offshore renminbi market presents a puzzle for analysts of China's development strategy. By allowing renminbi to flow offshore uncontrolled before loosening government controls over internal financial markets, Chinese officials are straying from the normal sequence of steps toward currency internationalization. Why might that be? In this Center for Geoeconomic Studies Working Paper, produced in association with CFR's International Institutions and Global Governance program, Peter Garber seeks to answer that question by investigating what drives offshore renminbi markets and how they are evolving.

Financial crises in the 1930s and 1970s showed the world that economic instability results when demand for international liquidity allows a small number of countries to run up massive debts in their own currencies. Named for the economist who first described the scenario in the 1960s, this “Triffin Paradox” threatens the global financial system again today as demand for reserves has skyrocketed among emerging market economies. In this Center for Geoeconomic Studies Working Paper, produced in association with CFR’s International Institutions and Global Governance program, Professor Alan Taylor considers whether China might play a larger role in stabilizing the world economy by supplying a reserve asset of its own—an internationalized renminbi.

Internationalization was a spontaneous outcome of the marketplace for the rest of the world’s major currencies, but China is breaking with history by making it official policy to steer the renminbi on a path toward reserve currency status. However, this managed internationalization occurs at a time when China’s financial development is still in a transitional phase featuring capital controls and other constraints on credit growth and allocation. In this working paper, the author explores the policy challenges facing Chinese authorities as their pursuit of an internationalized renminbi threatens to undermine the effectiveness of their domestic financial market controls.

The United States will host the Asia-Pacific Economic Cooperation’s (APEC’s) 19th Economic Leaders’ Meeting in Honolulu, HI, on November 12 & 13, 2011. APEC was founded in 1989 to facilitate trade and investment liberalization in the Asia-Pacific region. Although the United States was among APEC’s founding members, some U.S. officials have been frustrated with APEC’s approach to trade and investment liberalization and facilitation. From its inception, APEC has used a consensus-based, non-binding approach in which its members unilaterally adopt non-discriminatory liberalization and facilitation measures. In much of its trade policy, the U.S. government has generally utilized an approach based on negotiated binding agreements applicable only to the parties to the agreement. As such, there has been frequent discussion about APEC’s proper role in U.S. trade policy. This report explains the U.S. agenda for the 2011 APEC meeting and compares APEC with other regional fora that deal with matters similar to those covered by APEC.