Bringing down the Great Wall? Global implications of capital account liberalisation in China

Capital account liberalization in China and internationalization of the renminbi would have a large impact on the global financial system. An illustrative thought experiment suggests China's gross international investment position could increase from around 5% to 30% of world GDP by 2025. The U...

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Bibliographic Details
Published in:Bank of England. Quarterly Bulletin 2013-01, Vol.53 (4), p.304
Main Author: Hooley, John
Format: Article
Language:English
Subjects:
Bank reserves
Banking industry
Central banks
Economic development
Economic growth
GDP
Global economy
Globalization
Gross Domestic Product
International finance
Investments
Liberalization
Renminbi
Restrictions
Studies
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Summary:Capital account liberalization in China and internationalization of the renminbi would have a large impact on the global financial system. An illustrative thought experiment suggests China's gross international investment position could increase from around 5% to 30% of world GDP by 2025. The UK financial system is likely to be particularly affected. The Bank is working with the People's Bank of China to ensure a successful and stable development of renminbi activity in London. This article discusses these potential developments in more detail. The first section sets out the context, assessing how financially open China is today, and also Looks at existing financial links with the UK. The article then considers the changes in capital flows that might arise if China opens its capital account. The final section looks at the potential implications for China and the rest of the world. A box assesses recent developments in offshore renminbi activity in the UK.
ISSN:0005-5166
2399-4568