The People’s Republic of China’s Financial Markets: Are They Deep and Liquid Enough for Renminbi Internationalization?

Prince Christian Cruz, Yuning Gao, Lei Lei Song
JEL codes: 
E4 E5
ADBI Working Paper Series

Domestic financial market development is a key determinant of a currency’s international
status, and financial depth and market liquidity are two essential attributes for an
international currency. This paper discusses the status of the People’s Republic of China’s
(PRC) financial markets and their depth and liquidity conditions. The paper also compares
the PRC’s financial markets with those in developed and emerging economies,
contemporaneously and historically. The paper finds that the PRC’s financial markets are not
as deep and liquid as those in developed economies, and are much less so than those with
international currencies. To support the internationalization of the renminbi, the PRC needs
to remove several major obstacles to deepen its financial markets and improve their liquidity