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This chapter describes the increasing use of the RMB in international trade and finance transactions. These developments have been driven by China’s increasing weight in global GDP and trade, and have also been actively promoted by the policies of the Chinese government. The RMB has become the fifth largest international payment currency. It accounts for settlement of about a quarter of China’s foreign trade and 2 percent of global foreign exchange market turnover. China has sanctioned fourteen offshore financial centers, in addition to Hong Kong and Macau, to promote the international use of the RMB. China has also signed bilateral deals with some of its key trading partners such as Japan and Korea to allow cross-border transactions to be settled using their own currencies rather than being intermediated through the U.S. dollar.

Prognoses of China’s currency—Renminbi or RMB in short—going global have become a hotly debated topic in the economic and popular literature of late. While some analysts are tipping a gradual transformation of the RMB into the world’s next principal reserve currency in lieu of the US dollar, others contend that the deficiencies of China’s financial market will continue to preclude any such transformation for a long time to come. This chapter surveys the arguments put forward by either camp and to weigh into this debate not only through the prism of applied economic theory or political economy but also through the prism of economic history.

The implementation of the China-ASEAN Free Trade Area (CAFTA) has deepened regional economic connectivity. Even so, challenges brought about by the potential of TPP, unsustainable trading patterns, and ASEAN misgivings remain concerning the prospect of CAFTA. The author presents two trends: On the one hand is the trend that bilateral economic ties will be further enhanced and, looking ahead, that ASEAN member states will benefit more from CAFTA. On the other hand, distrust and misgivings about China are mounting among Southeast Asian countries, largely due to the unresolved territorial disputes. Hence, the gap between their close economic ties and strategic mistrust will likely grow. Countries in East Asian have to struggle between these conflicting trends.

Monetary cooperation in East Asia has been slow over the last decade, hampered by lack of leadership and political will. The Chiang Mai Initiative represents important progress but unilateralism in exchange rate coordination still prevails. The global financial crisis has failed to confirm the necessity of monetary cooperation and the European financial crisis has dealt a fatal blow to the aspiration for an Asian monetary union and an Asian common currency. Regional monetary cooperation will be more ad hoc in the foreseeable future. Renminbi internationalization reflects China’s intention to go its own way to safeguard its own interests. However, East Asia should not give up its efforts toward regional monetary cooperation. Perhaps, the wider use of local currencies in trade, investment, and financial transactions represents a new way forward. As the global economy may have entered a long recession, East Asia must shift its growth paradigm to rely on domestic demand.

This chapter examines the role of Korea in promoting financial and monetary cooperation in East Asia. This process has been constrained by a lack of cooperation between China and Japan, the two dominant economies. The rise of China as a global economic power makes cooperation even more complicated. Korea finds a dwindling room for mediation between conflicting interests. The 2007–9 global financial crisis has called for a review of Korea’s exchange rate policy and its strategy for regional financial and monetary cooperation. The Chiang Mai Initiative went through its first market test and the outcome has not been reassuring. No country considered approaching China and Japan, although several faced liquidity shortages. RMB internationalization will weaken solidarity and undermine both the rationale and cooperative efforts for moving forward with cooperative initiatives, simply because neither Japan nor Korea can join the new RMB area.