Is China Bypassing the International Financial System?

Resumo

The paper’s main objective is to contribute to studies on the internationalization of the Chinese currency, the renminbi (RMB), through a theory seldom used within International Relations, that is, the International Institutional Bypass (institutional bypass). According to Prado and Hoffman (2017), institutional bypass resembles the deviations created by surgeons around an obstructed artery, using a new vein taken from another part of the patient’s body.  In the social sciences, this means that government authorities are progressively creating institutions rather than reforming traditional ones. Through institutional bypass, governments form new institutions that, in practice, bypass the functions of institutions they consider dysfunctional. Afterwards, the “defective” institutions end up coexisting, complementing, or disappearing due to these newly created organizations within the international financial scenario. I apply the institutional bypass theory to study two specific institutional phenomena of the RMB internationalization process. These are institutional innovations built on Beijing's initiatives within the global financial system. They are Chinese offshore financial centers that offer financial assets denominated in RMB (RMB Offshore Centers) and the Chinese international payment system, known as China Cross-border Interbank Payment System (CIPS). This originality is materialized when CIPS and RMB Offshore Centers provide services and offer products in RMB like other institutions that carry out related activities, but that China considers inefficient, giving concreteness to the institutional bypass theory. These "other institutions" would be the offshore centers for financial products in dollars, as well as the traditional institution that provides messages and electronic records of financial transactions, the Belgian company - SWIFT, competitor of CIPS.