| I. Main ContentsSince the 1990's, RMB has been more and more broadly accepted in the foreign exchange, particularly with neighboring countries, along with our country's economy sustainable increasing, comprehensive national power on rising and the value of RMB keeping stable. RMB can circulate outside China, which demonstrates that RMB has already started the internationalization process. Analyzing the reasons and influence of the cross-border circulation of RMB, reasonably judging the stage of RMB internationalization, knowing its advantages and costs, understanding its favorable and unfavorable conditions, have important realistic implications for promoting the process of RMB internationalization. Taking a great deal of research results at home and abroad as references, and adopting theoretical analysis and empirical analysis together, this thesis is divided into three parts:The first part presents the theoretical foundation of the cross-border circulation of RMB. The cross-border circulation of RMB is in fact the internationalization of RMB. Therefore, the paper mainly elaborates the definition of international currency, the contents and measure standards of internationalization of currency. Furthermore, it describes some related theories, such as Currency Substitution Theory, Optimal Currency Areas Theory and"Trilemma Theory". On the basis of the theories about currency internationalization, the paper provides an overview of internationalization conditions and experiences on the internationalization processes of main international currencies, such as Pound Sterling, US Dollar, Japanese Yen and Euro, including huge economic scale, strong science and technology strength, stable currency value, flourishing foreign trade, foreign investment growth, aggressive push from government and necessary international cooperation.The second part presents the reasons, influences, benefits and costs of cross-border circulation of RMB. It includes that: (1) By estimating the amount and distribution of RMB circulating outside China, the degree of RMB internationalization has been evaluated, and the conclusion that RMB is now on the beginning stage of internationalization is drawn. (2) The reasons that RMB can circulate across the borders are discussed in details. These reasons include stable economic growth, stable value of RMB, development of frontier trade and tour, economic fusion between Hong Kong-Macau and mainland, opening to the outside world and reformation of foreign exchange's managing system. (3) Influences of RMB'circulation outside China are discussed. It is concluded that RMB circulating outside China could promote development of frontier trade, lower exchange rate risk, raise the international position of RMB, change currency system in East Asia of USD predominance, and RMB probably becomes and"anchor currency"in the district. (4) The benefits are divided into two parts: one is international seigniorage revenues, namely money base tax and opportunity cost tax; the other is the expanded income on international seigniorage, including financial surplus, settlement currency balance, exchange cost control, discursive power in international financial system, international impact of monetary policy and the initiative to adjustment of international payment. The costs include policy cost,"Triffin Poser", speculative attacks cost, currency value stability cost and supervision and management cost.The third part presents countermeasures of promoting RMB to circulate outside China. It mainly has two sections: (1) Favorable and unfavorable conditions are analyzed. The favorable conditions include: The continually rising comprehensive national power, good economic development; economic fusion between mainland and Hong Kong-Macau accelerates, closer trade with Taiwan; the free-trade zone between China and ASEAN; progress in the Asian district currency cooperation, etc.. The unfavorable conditions includes: USD still keeps the predominant status in East Asia; the financial system in East Asia and neighboring countries is relatively weak; the mutual trust between China and peripheral nations and regions is not enough; there is not effective financial investment place for RMB circulation outside China; RMB reflux channels are not enough etc. (2) Measures of promoting RMB to circulate outside China are discussed. They mainly include: Firstly, RMB exchange rate must be kept stable. The currency internationalization process substantially is"good currency driving out bad currency", but the standard of good currency is monetary stabilization. RMB has the economic foundation for increasing its stability, it includes: the transformation of our country economic growth mode, long time trade surplus and large number of foreign exchange reserves and the analysis and predict of RMB revaluing in the future in terms of purchasing power parity. For promising the stability of RMB exchange rate, this paper indicates that it was important to improve mechanism of RMB exchange rate, increase the flexibility of RMB exchange rate; build up the regime of exchange rate target zone; and establish free floating exchange rate regime at last. Secondly, the process of free convertibility of RMB should be accelerated. The paper analyzes the relationship between convertibility of RMB and cross-border circulation of RMB, takes the view that RMB circulating cross border can speed up the process of convertibility of RMB; moreover, improvement of the latter can further promote the process of the cross-border circulation of RMB. So it indicates that it is necessary to accelerate the process of convertibility of RMB by establishing the convertibility of RMB zone, to promote the monetary cooperation mechanism between China and neighboring countries; to establish the RMB immigration monitors; to gradually free the investment control on foreign institutions in our country and on local institutions in other countries, and to gradually permit the foreigners being engaged in our stock market. Thirdly, an offshore financial center can be set up in Hong Kong. The paper analyzes the necessity and the feasibility, possible short term attacks and long term compact of it on Mainland, then presents the development path and risk prevention strategies, including allowing Hong Kong bank to conduct RMB loan business; allowing mainland to issue RMB bond in Hong Kong; allowing mainland and Hong Kong business enterprises to issue their stocks denominated in RMB in Hong Kong; promoting settlement in RMB between mainland and Hong Kong. Fourthly, RMB's participation in international settlement should be promoted. Based on the analysis of the necessity and the feasibility, the following measures are proposed: gradually extending the participation items; further improving the export tax-reimbursement; eliminating the limitation on the amount of the RMB allowed to be carried outside China; encouraging Chinese banks establishing some branches in neighboring countries; gradually opening the RMB business in the oversea branch of domestic banks; establishing the foreign exchange administration for RMB as international settlement currency; permitting investment at home and abroad and the export credit business by RMB etc.. II. Main Contributions and Innovative PointsThis paper on cross-border circulation of RMB has important theoretical and practical implications. The innovative points of this paper include:1. Currency internationalization is a dynamic process. In this process, for different currencies in different countries or different stages, the internationalization conditions are different. We can not simply apply the currency internationalization conditions a under a common theory; other currency's internationalization process and path can not be duplicated either.(2) The reasons of cross-border circulation of RMB are analyzed. The main reason is the stable value of RMB. The author, based on qualitative analysis, does some related quantitative analysis. It is concluded that the stable value of RMB is the most important reason. This is different from the general interpretation that the economic growth or the economic scale expansion is the most important reason of cross-border circulation of RMB. It offers empirical evidence for designing strategy in RMB internationalization.(3) The degree of RMB internationalization is evaluated, and it is concluded that RMB is now on the beginning stage of internationalization process. With empirical study on the scale and scope of cross-border circulation of RMB and utilizing some related theories about the degree of internationalization of currency, this paper takes qualitative and quantitative analysis on degree of internationalization of RMB. It is concluded that RMB internationalization's degree has been continuously increasing, its international status is between the common currency and the outstanding currency, and is in the entry-level stage of internationalization. The author disagree with the statement made by some scholars that RMB has already become the regional currency or internationalized currency.(4) On the basis of the amount of the cash and deposit in RMB circulation outside China, the paper has calculated the base money income and opportunity cost income, as well as financial surplus and currency settlement surplus in RMB seigniorage extension income. These calculations provide the evidence for the conclusion that the income of cross-border circulation of RMB was far larger than the cost.(5) Some suggestions for promoting RMB to circulate outside China are proposed. They include: (a) reforming the exchange rate mechanism can keep RMB stabilization; (b) accelerating the process of the RMB free convertibility, and increasing the scale of cross-border circulation of RMB, can create beneficial conditions for RMB free convertibility; (c) opening much more RMB business of Hong Kong banks, allowing them to provide RMB loans, allowing domestic enterprises to issue stocks denominated in RMB in Hong Kong, promoting the trade settlement in RMB between Hong Kong and mainland; (4) promoting RMB to participate in international trade settlement, especially actively with neighboring countries, improving the export tax-reimbursement mechanism of clearing in RMB, spreading the item scale and permitting overseas investment by RMB..The scope of the problem of cross-border circulation of RMB is very wide, and high level of theoretical and practical analyses are needed. As a result, this paper has the following limitations:(1) The estimation in the circulation amount and distribution scope of cross-border circulation of RMB might have some errors. The form of RMB circulating across boundaries is mainly cash, and there are a lot of channels. This brings a lot of difficulties to related statistics. Although the data in this paper are drawn from authoritative departments, they might not be very accurate. This paper tries an adoption quantitative analysis to estimate offshore RMB amount, but up to now there are no methodology that is completely approved by theoretical analysis and practical department. Therefore, the quantitative analysis of cash amount of RMB circulating offshore is not definitely accurate.(2) The analysis and the measures regarding the relationship between RMB and HK dollar are not definitely accurate. This relationship involves some questions, such as laws, capital market relationship between Hong Kong and mainland, the exchange rate between RMB and HK dollar, money laundering and financial supervision etc. These questions need more thorough research in the future.
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