M-RCBG Associate Working Paper No. 196

Capital Account Liberalization and China’s Financial Integration

Longmei Zhang



After four decades of rapid economic growth, China has become the world's second-largest economy and established intricate trade ties with the rest of the world. Nonetheless, China's financial integration is still in its infancy, primarily due to restrictions on cross-border capital flows. This paper provides an overview of China’s capital account policies and its global financial footprint. By looking at cross-country experiences, this study examines how capital account liberalization and financial deepening may significantly expand China’s foreign assets and liabilities and affect the landscape of the international monetary system. In this context, it will also discuss the implications of China’s financial integration on Renminbi internationalization. While China’s trade integration has largely strengthened the dollar’s role in the international financial architecture, its financial integration may have a greater impact on the global use of Renminbi.

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