Study On Currency And Economic Area: A Historical Approach

This dissertation studies on the economic areas and the strategy and process of RMB's internationalization. The research attempts to find how to create better conditions for RMB Yuan to play a central role at the global economic stage as soon as possible, and how to reduce the cost at which RMB goes international and becomes the third dominant international currency following British Pound and US Dollar. Based on the survey of relevant literature and theories, some important (currency) economic areas have been examined in details and the strategic framework for RMB's internationalization has been proposed.This study employs a different historic approach to re-examine the formations of the world's major economic areas and their decisive roles in the evolvement of dominant international currencies. The paper illustrates the preconditions and constraints for the formation of Chinese economic area by analyzing abundant facts and data, and also does comprehensive research in the foundation and process of the internationalization of RMB.The main conclusions of this paper are as follows:1. The central country in each economic area shares the followings in common: First, the core country is a super effective and powerful economy. Second, it has leading technology and advantage on innovation. Third, it has superior institution and extraordinary error correction capability. Fourth, it has a favorable geopolitical advantage. Fifth, it keeps the economy open and competitive. Finally, it has political wisdom and comprehensive strategic planning.2. The formation of a dominant international currency is a tortuous process. It needs not only to meet some political and economic conditions, but also to capture the possible opportunity created by major historical events, and hence needs to make s a systemic arrangement and strategic planning. From a historical perspective, the rise of a leading currency has the following rules: First, the formation of a world's dominant currency has to rely on a closely related economic area; Second, the dominance position of a currency and that of an economy are significantly not synchronous, which in large part results from the path dependence; Third, the comprehensive economic strength is the fundamental factor behind a dominant currency, especially the demand factors.3. Building China's economic area should learn from the US economic area, which is based on expansion of the union domestic market, and take a strategy, which is brought out by the author, "One Body, Two Wings and Multi-ring". The body refers to the union market including the Mainland, Honking,Macaw,and Taiwan. The Union Market is the strategic fulcrum of Chinese area expansion. The"Two Wings"refer to the direction of geographic expansion. One is the extension to the west to Central Asia, the other is to build the west Pacific economic zone. The"Two Wings"are not only the safeguard of China's energy support, but also the expansion of China's large market. Chinese economic area faces more and more complicated external environment. Although China's comparative advantage is increasing steadily, it will diminish if there is a major strategic mistake.4. "Triffin Dilemma" is a major force that drives the evolution of the international monetary system. A new future international monetary system can only be a credit standard system, and the "Triffin Dilemma" will be resolved by the diversification of dominant currencies. Through credible threatens, the "Prisoner's Dilemma" of a multiple international monetary system can be well resolved.5. In order to make RMB become a dominant currency, we should build a closer economic area and make a steady progress in building"the union domestic market". It must improve China's internal financial infrastructure, and then create market conditions for the internationalization of the RMB. Before acquiring the dominant currency position, the RMB Yuan must first obtain the leading currency position in the Chinese economic area. We should insist on the synergy of the advancement of the multiple three-steps, strengthen the consensus on RMB being a shadow currency of U.S. dollar through institutional arrangements. RMB should utilize the dominant position of U.S. dollar as fully as possible to achieve the leading position in the future international monetary system.