Offshoring the Uncovered Liability Problem: Currency Hierarchies, State-Owned Settlement Banks and the Offshore Market for Renminbi

The existence of an uncovered liability has historically benefited foreign banks and lead currencies. Using the case China’s efforts to fund its exchange needs by exploiting loopholes in international financial architecture, paper examines whether using state-owned settlement as a means intermediating specialised ‘non-deliverable’ asset offshore markets can substitute institutional technical prerequisites that developing economies typically lack. findings show while money reduce US dollar dependency areas such trade invoicing do not depend on currency delivery, increasing holdings RMB is more challenging. reasons for this are be found way governance, geographic credit generating limitations state reinforce constraints imposed problem. distinguish historical evolution RMB’s use from other impossibility separating issues related infrastructures those structure system.