China Research

According to different articles in media – also at home – the conclusion could be made that China soon will be introducing full convertibility of its currency, the yuan. Such a step would, of course, have far-reaching consequences for all companies all over the globe dealing with China, Swedish companies included. In previous articles, I have always explained such a surprising and sudden step as risky and premature. Instead, I have been pleading strongly for a very gradual introduction of full convertibility of the Chinese currency. Therefore, the news from this morning made me quite astonished.

However, things do not seem to be that exciting. I have checked different Chinese sources – the press included – and have just found that ”China will gradually make the yuan convertible on the current account…” (Xinhua November 3). The ambitions to internationalize the yuan seem to be much higher at this stage of financial deregulation.

Here we go again: gradual deregulation is the melody of the Chinese. This is certainly the right way to move forward when it comes to financial cross-border deregulation. Improvements of the domestic financial market, however, are more urgent – and should timewise be put in the first place. Sequencing – i.e. domestic financial reforms before the complete opening-up of the capital account and full currency convertibility – matters also in this context.

Hubert Fromlet
Senior Professor of International Economics, Linnaeus University
Editorial board

Back to Start Page