The Aleph Blog » Blog Archive » Cato Institute 30th Annual Monetary Conference, Part 6

Cato Institute 30th Annual Monetary Conference, Part 6

Moderator: Tao Zhang
U.S. Bureau Chief, Caixin Media

Capital Freedom for China

 

Eswar S. Prasad
Tolani Senior Professor of Trade Policy, Cornell University

Renminbi as a reserve currency 3 conditions:

  1. Internationalization
  2. Capital Account Convertibility
  3. Do other countries hold Renminbi assets as protection against payments crises. (DM: also, do you want to have a lot of debt for foreigners to invest in.

Much progress on #1, little on #2 and 3.

Second order effects of opening: Institutional market development, financial market development.  Try out experiments in Hong Kong.

Size of China, macroeconomic policy potentially allow for  reserve currency, but the banking and financial markets are not capable of absorbing the volatility.

PBOC creating Renminbi swap lines.  IMF more involved w/China; SDR basket membership coming.  Renminbi becoming a bigger factor in the global economy.

Yukon Huang
Senior Associate, Carnegie Endowment for International Peace

400 years ago, China was a reserve currency with 30% share of Gross World Product.

Being a reserve currency lowers trading costs, lends prestige.  Serves as a “Trojan Horse” for reform in China. Seiniorage.

Triffin dilemma, conflict between domestic and foreign goals, adds to currency risk.

China has partially internationalized with capital controls.

Also, reserve currencies are typically issued by democracies.

Chinese authorities use banks to motivate growth and development.  Not markets.

Capital flight happening.  Huang thinks that is good: diversification and other benefits.

Zhiwu Chen
Professor of Finance, Yale School of Management

Money used to settle increasingly more transactions in China, whether it is housing, wages, etc.  Everything is no longer tied to the government.  “Rise of the individual in China.”  McDonald’s in China originated “I’m loving it.”

As rule of law diminishes across Chinese industries, state ownership tends to rise.  The more free the movement of capital in Chinese industries, state ownership tends to fall.

China late to develop limited liability corporations in the late 19th century.

SOEs ran into major losses in the 1980s, and private corporations came back.  But most large firms are still controlled by the government.

Q&A

Possibility of democracy in China?

Prasad: No.  Communists have largely delivered the goods.  Regional problems.

Chen: Yes. Options for the Communist Party are limited. Change may be forced when the good can’t be delivered any more.

Huang: property rights are uneven, and Party members abuse their power.






bloggerbuzzdeliciousdiggfacebookgooglelinkedinmyspacenetvibesnewsvineredditslashdotstumbleupontechnoratitwitteryahoo
Banks, Bonds, Currencies, Fed Policy, Macroeconomics, public policy, Stocks | RSS 2.0 |

Comments are closed.

Disclaimer


David Merkel is an investment professional, and like every investment professional, he makes mistakes. David encourages you to do your own independent "due diligence" on any idea that he talks about, because he could be wrong. Nothing written here, at RealMoney, Wall Street All-Stars, or anywhere else David may write is an invitation to buy or sell any particular security; at most, David is handing out educated guesses as to what the markets may do. David is fond of saying, "The markets always find a new way to make a fool out of you," and so he encourages caution in investing. Risk control wins the game in the long run, not bold moves. Even the best strategies of the past fail, sometimes spectacularly, when you least expect it. David is not immune to that, so please understand that any past success of his will be probably be followed by failures.


Also, though David runs Aleph Investments, LLC, this blog is not a part of that business. This blog exists to educate investors, and give something back. It is not intended as advertisement for Aleph Investments; David is not soliciting business through it. When David, or a client of David's has an interest in a security mentioned, full disclosure will be given, as has been past practice for all that David does on the web. Disclosure is the breakfast of champions.


Additionally, David may occasionally write about accounting, actuarial, insurance, and tax topics, but nothing written here, at RealMoney, or anywhere else is meant to be formal "advice" in those areas. Consult a reputable professional in those areas to get personal, tailored advice that meets the specialized needs that David can have no knowledge of.

 Subscribe in a reader

 Subscribe in a reader (comments)

Subscribe to RSS Feed

Enter your Email


Preview | Powered by FeedBlitz

Seeking Alpha Certified

Top markets blogs award

The Aleph Blog

Top markets blogs

InstantBull.com: Bull, Boards & Blogs

Blog Directory - Blogged

IStockAnalyst

Benzinga.com supporter

All Economists Contributor

Business Finance Blogs
OnToplist is optimized by SEO
Add blog to our blog directory.

Page optimized by WP Minify WordPress Plugin