Research On The Monetary Competition In East Asia And The Internationalization Of RMB

Since the end of the World War II, the international monetary system has beendominated by the U.S.dollar. Objectively speaking, such a hierarchy has made a hugecontribution to the growth and stability of the world economy. However, along with theeconomic development of other developed countries and emerging market economies,abuses of the U.S. dollar as the dominant international currency have becomeincreasingly prominent. Meanwhile, this structural imbalance of the current internationalmonetary system gradually began to play the instable role of the global economydevelopment. The birth of the euro signified a kind of interim victory achieved byEuropean nations for challenging the dollar hegemony. After the global financial crisis,East Asia, the most active area of the world’s economic growth, seemed to be slowlywaking up. Due to the many differences in economic, political, the stage of socialdevelopment and cultural aspects, it is tough to form the East Asian region like the euroarea monetary union, even launching a regional single currency in the foreseeable future.Export-oriented economic development mode which might be transformed immediatlyand the high dependence on the United States market triggered the dollar to stillundertake major currency functions in the region, such as valuation, settlement and thestore of value.In other words, the color of dollarization in this area can not fade in theshort term. But that does not mean that the East Asian countries will repeat compromisesto the cost and hazards on the current dollar system. The continuing decline of the U.S.economy and the dollar has strengthened the confidence of the countries in the region totake the de-dollarization efforts. Attachment or challenge is a dilemma and a trueportrayal of East Asia currency competition. This is the focus of this study as well.From different angles of theory and experience, history and reality, the articlestudies the currency competition in East Asia and RMB internationalization in theperspective of monetary competition. The conclusion of this study tries to clarify thefollowing questions: international monetary competition mechanism; dollarizationsituation and de-dollarization approaches in East Asia and its Enlightenment to RMBinternationalization; RMB internationalization conditions, cost, income and routes choice from finite flow to completed flow; the East Asian currency competition model shape.Currency competition is essentially a process in which a sovereign currencybecomes an international currency and excerices all or part monetary functions throughcompetition outside the issuing country. Currency competition mainly goes throughmechanisms of currency substitution and monetary internationalization. The key tosuccess lies in the strength of the national economy, terms of trade as the final marketproviders, the degree of development of financial and capital markets and the stability ofthe exchange rate and how much the interest rate is decided by market, etc. The dollar, asa national currency subsititution, is still in exercise of monetary functions in many fieldslike trade, investment and foreign exchange reserves in East Asia. Commoditiesdenominated and settled in dollars and a over reasonable range of dollar reserves is themain manifestation of dollarization in East Asia.Although The Japanese yen was tryingto expand its influence in the region through its internationalization process and was toform a yen curreny circle to replace the dollar, the effort does not seem to have imaginedsuccess. The Japanese yen is playing the monetary role as value more than other functionaspects, which is even less than that of the euro.But subject to regional restrictions, theeuro outside Europe and countries are still far from threatening the dollar.China’s economic miracle has attracted the attention of the world. After the globalfinancial crisis, the RMB internationalization seems to be a rather more reliable choicethan US dollar in East Asian countries and one of the important ways of de-dollarizationto China and even to the region. This paper attempts to verify that the Chinese currenteconomic development level, the final trade market provider status, exchange rate andinterest rate reform achievements, as well as the degree of liberalization of the financialand capital markets have been able to make RMB lie in the limited flow stage and partlyrealize its internationalization conditions. How to choose the approporiate paths from themonetary sovereignty to international currency, from the limited flow to completed flow,from the dollar peg system to compete with the US dollar? What will a monetarycompetiton situation look like in East Asia? How will the internationalization process ofthe dollar, euro and Japanese yen bring demonstration effects to RMB? What are theimportant implications for the internationalization of RMB from main East Asian economies’ dollarization experience? This paper will elaborate on these specificproblems.