The Full Convertibility of Renminbi: Consequences and Influences

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The Full convertibility of Renminbi: Consequences and Influences

Abstract This paper indicates the issue of full convertibility for the Chinese currency, Renminbi(RMB), and its impact on the economy of China. It does not only point out the sequencing of Renminbi’s full convertibility, expounding the detailed concepts procedure of currency convertibility (current account convertibility and capital/financial account convertibility and full convertibility) but also focus on the necessity and challenges will bring to China based on this subject. A review of historical process toward the full convertibility of Renminbi will be provided. There are still various restrictions on capital account convertibility in China. It still takes some
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To talk about one currency’s convertibility often implies how open an economy is as the concept of convertibility of one currency covers the unrestricted use of a country’s currency for international currencies allowing it to be exchanged for foreign currency to make a transaction.

1. Current account and convertibility
The current account is the sum of the balance of trade (exports minus imports of goods and services), net factor income (such as interest and dividends) and net transfer payments (such as foreign aid).
The definition of Current account convertibility based on the 8th item of IMF, Member States agree that no exchange restrictions can be imposed to international payment and funds transfer; discriminatory or multiple currency exchange rate measures are not allowed; It is all member states’ obligation to exchange other members’ domestic currency.[2]

2. Capital account and convertibility
In Macroeconomics and international finance, the capital account (also known as financial account) [3]reflects net change in national ownership of assets.
However, the term "capital account" is used with a narrower meaning by the IMF and affiliated sources. The IMF splits what the rest of the world call the capital account into two top level divisions: financial account and capital account.[4]
Given the complexity of capital account transactions, on capital account liberalization, the IMF 's demands are much broader, there does not seem to be a definition

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