A Study On The Internationalization Of RMB

China is one of the major economies in the world and contributes much to the world constantly. However, it plays a minor role in the international financial market and the international monetary system. Moreover, the fast-growing economy does not lead China to a strong position in the international financial market. The main reason is that RMB is under stringent control and is still a weak currency in the international market. Internationalization of the RMB can promote the reform of the interest rate liberalization, the exchange rate system, commercial bank system, and the capital market, and hence sustain the economic development in China. This thesis reviews the history of internationalization of the current major currencies, analyzes the hurdles in internationalization of the RMB, examines the relationship between various core elements and internationalization of the RMB, and eventually proposes possible procedures of internationalization of the RMB.The first chapter introduces the writing background,research significance, objective, method,and points out the innovative points and deficiencies on the basis of review the current research on currency internationalization at home and abroad.The second chapter summarizes the theory of international monetary mainly from the Marxist economics and Western economics perspectives. Marx analyzes the form and role of the national currency in the world market. The major theories in Western economics about international monetary are OCA theory and currency substitution theory, which has important significance for RMB regionalization and currency substitution phenomenon in the process of RMB internationalization.The third chapter analyzes reasons and risk of RMB internationalization. The benefits mainly come from three aspects: first, internationalization of the RMB can earn the international monetary seignior age revenue;second, it can promote economic development and macroeconomic stability in China;third, it could promote the development of relatively poor financial industry. The risks of internationalization of the RMB can be categorized using the timeline of the process: risks in the process of internationalization of the RMB and risks after the RMB becomes an international currency.The development of internationalization of RMB will increase the likelihood of asset bubbles and financial instability, appreciation of the exchange rate can weaken China’s export competitiveness, the rapid development of the offshore market raises arbitrage opportunities. After the RMB becomes an international currency, it will face Triffin dilemma and possibly lose monetary policy independence. Then the conclusion is that the benefits will be greater than the risks from the internationalization of the RMB, which paves the way of the study of the current situation and the path.The fourth chapter summarizes the history of major currencies’ internationalization development, which provides a reference for the development of internationalization of RMB. The history of internationalization of pound, dollar, euro, Japanese Yen and Australian dollar is reviewed in this chapter. From the study of the major international currencies, we can conclude that,the foundation of internationalization of the RMB is high level of economics development. Moreover, complete financial markets and developed domestic financial system are important prerequisites. Lastly, developing a good environment should be prioritized over the RMB internationalization. Otherwise, internationalization of the RMB can be negatively productive.The fifth chapter summarizes the current situation and the main obstacle of the development of China’s RMB internationalization. The issue of the RMB internationalization has originated from the early 90 s of the last century. However, this issue becomes a national strategy until 2008. After seven years of development, the role that RMB plays have extended to international settlement currency, denominated monetary, and reserve currency areas. Nevertheless, at the same time, there are still some problems exist, such as unbalanced development among international settlement, and the rapid development of export settlement as a result of the expected appreciation. Also, the onshore and offshore markets lead to an increase in speculative capital flows since the RMB formal return channel is limited. It is difficult for China to protect from speculative capital due to poor development of domestic financial sector, which poses a threat to our financial stability.Chapter six analyzes some important factors associated with the topic. Firstly, this chapter shows that the prerequisites of internationalization of the RMB, such as the level of domestic economic development foreign trade, and inflation, are satisfied in China;secondly, this chapter examines the relationship between interest rate liberalization, exchange rate liberalization, capital account liberalization, and RMB internationalization. The exchange rate regime in China is not fully liberalized, and the key of exchange rate liberalization is to change from pegging to the dollars to the policy that pegs the RMB to a basket of currencies. Appropriate exchange rates and floating range should be carefully selected in the process of RMB internationalization; capital account liberalization has a tremendous impact, and hence cannot be liberalized rashly under the imperfect financial system. Therefore, the interest rate liberalization maybe carried out first in the process of RMB internationalization. Then the floating range of the exchange rate should be gradually expanded, accompanied with gradual capital account liberalization at the right time.Chapter seven proposes a path of RMB internationalization in both short-term and long-term. We suggest in the short-term the internationalization of RMB should be promoted under the current circumstances.First,the government should continue to speed up the process of RMB Regionalization;second,construction of offshore RMB centershould be developed fast.On one hand, construction of offshore RMB center should be encouraged to speed up the introduction of offshore RMB-denominated financial assets to meet market demand for offshore RMB-denominated assets, while strengthening the construction of the infrastructure in the offshore market. On the other hand, the relationship between the onshore market and the offshore market should be properly treated, and the onshore market mechanism should be changed according to offshore market in order to realize financial deepening. China should also participate in the international monetary system reform, and cooperate to have early accession to the SDR, which can increase RMB share in international reserves under the existing conditions. In the long run, RMB internationalization may be promoted through co-ordination on development of interest rate liberalization,reform of exchange rate system and capital account liberalization,along with improving the financial system.On the background of the moved forward of interest rate liberalization, in additional with more capital controls, promoting the internationalization of the RMB requires reform of exchange rate system,if capital account liberalization prior to the reform of the exchange rate system, there are a lot of arbitrage opportunities will make domestic financial system instability severely. Based on the appropriate level and floating range of exchange rate, China’s capital account should be liberalized gradually on the following principles: liberalize projects with low risks first, fully liberalize China’s capital account when all the conditions are met without any external influence. At the same time, financial markets should be reformed, and macroeconomic regulation and financial supervision need to be improved through the reform of the financial system.Finally, the article forecasts the future when RMB becomes a major international currency. Furthermore, this chapter points out the problems that we should be paid attention to and future studies in pace with the development of RMB internationalization.