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The following article was published in our article directory on November 30, 2010.
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Speed Up the Process of Regionalization of RMB

Article Category: Business Management

Author Name: xia zihui

For developing countries or transition countries in general, in discussing the country's financial strategy, often do not discuss the problem of international currency. But for today's China, has emerged as the world's second largest economy, over the years with the exchange rate regime pegged to the dollar relative to, expand the economic strength, and today the U.S. economy is becoming increasingly serious, the world's first official dollar reserves with the Chinese to a great risk, but also to China's further integration into the financial globalization has added many new variables. In such a historical period of financial development, internationalization of the RMB have to discuss the issue.

World-renowned international monetary authority, the United States Leffrey Frankel and Menzie Chinn, Professor econometric methods have been derived using the following prediction: If the United States will not shrink its huge military spending, can not properly handle trade and financial "twin deficits "problem, the dollar is likely to lose hegemony. 2020 or earlier period, the euro will replace the dollar's dominance, the RMB in 10 years will become one of the international reserve currency, after 30 years it would jump into the ranks of the major reserve currency. From the world's great powers rise and fall of view, the replacement of a large country, it must be accompanied by the replacement of currency hegemony.

China today faces the world if there is a stable international exchange rate system, there is an equal and stable international monetary system, then the rise of China in the process, not necessarily going to deliberately pursue the sovereign currency of RMB internationalization. The problem is that today's financial world is not peaceful, too many problems. To avoid the reality of the financial world on the negative impact of China's development, internationalization of the RMB is compelling pursuit. Of course, the RMB to achieve full international, will become the world's major reserve currency, is a long process. However, due to a long trend of domestic and international economic development needs to proceed from now on start, it should be for the Chinese financial strategy the next 10 years an important step in the layout.

Its significance to China, is:

First, the current pursuit of internationalization of the RMB in order to continue to promote economic globalization to meet and maintain the world and China's economic growth. Because the maintenance of economic globalization, a stable exchange rate between national currencies is a basic condition. Serious problems facing the U.S. economy and the international monetary system defects, seek diverse international reserve system, is the world's economic future during a fairly long history of frustration choice. RMB can be international, is a stable expectation of economic globalization, but also the gospel of the Asian economy, and therefore the global economic interests lie. This is today in the pursuit of the internationalization of RMB, the primary significance of declaring to the world.

Second, the Chinese economy to maintain a balanced, sustained growth, also need to RMB internationalization. Third, the pursuit of internationalization of the RMB, to fully enhance the efficiency of China's financial system.

Fourth, the pursuit of internationalization of the RMB, China's economic performance is to prevent the risk of urgent need. Facing the U.S. today has led lack of the international monetary system, a minimum of RMB internationalization of economic operation to help prevent Fan Daguo three risks: First, liquidity risk, because the Chinese government, after all, the yuan's "lender of last resort"; the second is Under the market value of the currency mismatch fluctuations. Because the price of foreign currency assets of the risk table, in essence, is part of the country the right of transferring the regulation of financial markets to foreign governments; third is pricing risk. Because they have the basic constraints are not the country that issues currency in the capital has a comparative advantage on, the short term can get rid of a considerable extent, the pricing power of the world's market-related transactions the risk of being mastered.

Apart from the above analysis of the necessity, there are also the internationalization of RMB real urgency and feasibility.

Regardless of the urgency and feasibility of more reflected in the long historical process. Nevertheless, this year China's trade deficit with Asia, the amount of yuan in circulation in the expansion of border trade, the rapid development of cross-border trade settlement, the RMB and foreign investment and buyer credit the rise of offshore yuan trading in Hong Kong, some countries have decided to RMB as an official reserve, etc. All of this shows that the internationalization of RMB as there is a huge space and many opportunities for potential development. Although the internationalization of the RMB can not be achieved, but in the present, the RMB has been with "regionalization" of the initial conditions.

Strategy for 2020 at a distance during the transition period, the goal of internationalization of the RMB, the first is the pursuit of regional goals. Regionalization is just that the International Monetary geographical limitations in use, does not mean that the international currency in the function of any qualitative difference.

One must first find ways to let the yuan go overseas, such as the RMB to foreign investment, buyer credit, foreign aid, the central bank swap scheme, QDII quota in an increase of RMB, etc.;

Second, China's capital account is not fully liberalized in view of the reality, you can let the yuan freely convertible currency outside the same as any other to carry out deposits, loans, settlement payments, asset management, currency hedging and other all-round business, outside a certain the scale of the self-loop;

Third, let the foreign institutions and individuals willing to hold the investment of RMB, we must do so outside or in part, the holder can enjoy high economic growth in China to enjoy the benefits. This requires open up the domestic financial market and foreign financial markets in a controlled context of the "channel", such as allowing domestic institutions and enterprises issuing bonds overseas, QFII RMB amount to increase to allow foreign investment in domestic RMB funds, securities markets. RMB should not only based on regionalization, the capital account is not yet fully open the status quo, opening markets abroad, "channel" can only be limited, gradual implementation.

Therefore, the strategic layout, can be controlled in Hong Kong, the Chinese government to form an offshore RMB market. This is an important fulcrum of the country's financial strategy. This is a better choice, of course, also in "limited globalization" under the direction of the financial strategy the choice of last resort.

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