Research On RMB Internationalization

According to "The New PalGrave Dictionary of Economics", the internationalization of the RMB is a geographical expanding process from the near to the far. It was first used as a means of trade settlement that was accepted by the neighboring countries or regions, and gradually becomes the key currency in the Asian region through the participation in institutional cooperation and competition in monetary and financial field in Asian region, replacing other currencies in Asian region as a currency for free-flow exchange and trading, or as a currency of dominant part in a single common currency. The complete realization of RMB internationalization calls for the implementation of effective international currency risk control measures, combined with RMB's breakthrough in its expansion from the Asian region to the global region, to eventually exercise its function as a international currency, such as measure of value, medium of exchange and reserves means worldwide. What is more, the process of RMB's competition to become the key currency in the Asian region is an indispensable key step for RMB internationalization. The internationalization of RMB in Asia doesn't mean that RMB realizes the monetary integration in the Asian region. Different from the U.S. dollar's internationalization pattern, RMB internationalization does not have the real-world conditions for its direct conducting of internationalization process.RMB started to spread to the neighboring countries and regions after the Asian financial crisis in1997, which is the result of market selection. At that time, China did not conduct adequate preparations for RMB internationalization. However, RMB's internationalizing process had been quietly on the way. With the comprehensive development of China's overall national strength in the past20years, China as the world's second largest economy after the United States, RMB seriously mismatches with the status of it. In2007, when United States'"Subprime Crisis" was rapidly deteriorating, the status of RMB was effectively promoted further by the international financial environment, which was again given great expectations after a decade. The Chinese government and academia take more positive and supportive attitude to build a "top-level system design".The internationalization of RMB is not simply to meet the conditions of the currency circulation and exchange, but to participate in the international currency competition or to completely substitute other international currencies. Currently, the RMB cross-border circulation area has concentrated mainly in neighboring countries and Hong Kong, Macao and Taiwan regions, with relatively wide trade bridge. However, the use of RMB in financial markets is very inadequate. Based on the primary stage of RMB internationalization that trade relatively dominates over financial environment, this paper examines the RMB internationalization's present cross-border flow situation, combs the history of the international monetary evolution and the level of international monetary competition, sums up the competitive conditions of the existing international currency, and considers that RMB has the condition for its currency internationalization, especially for its solid preparation in Asian region. Of course, the internationalization of the RMB is facing many difficulties, such as RMB's exchange rate plight (the undervalued RMB, the increase in the degree of free convertibility on RMB capital projects), whether RMB could become the provider of the Asian market, whether China can resolve the plight of macroeconomic policy control during the internationalization competition of RMB, whether can manage the competitive and cooperative relationship with Yen. To solve the plight of RMB internationalization competition, we calls for the strategy of "Seize the opportunities, system support, reform and development, coordination and cooperation". The reveal of the inherent instability of the U.S. dollar single-stage international monetary system after the "Subprime Crisis", provides a space for the proceeding of RMB internationalization, building the institutional basis of RMB internationalization from the national level, further reforming China's position and trading structure in the international trade division, largely developing the financial markets. To regard the well-developed financial markets and the financial system as a jump point for the RMB's participation in the competition of international currency, to strengthen the monetary and financial cooperation in Asian region, to reposition the role of RMB and Yen in Asia, and to deepen the coordination and cooperation with Yen, will be in line with the interests of the internationalization of the RMB.RMB's participation in international currency competition not only faces the mismatching risk between the macroeconomic performance and the micro decision-making process, but also may confront the powerful pressure from other existing international currency, which may hinder the internationalization of the RMB, causing the internationalization risk of RMB, even further resulting in RMB crisis, exerting severe negative impact on China's economy and society. In the1980s, Japan and other countries took measures to limit their own currency's internationalization process owing to risk-based considerations. The main reason is the risk of currency internationalization has the cumulative and diffusive feature, indicating that once it starts, it will lead to huge losses. The common risks in currency internationalization are the risk of currency regulation and control, policy control dilemma, the capital impact risk and the risk of the banking system regulation. As for the countries that are in the process of their currency internationalization, studying on the influencing factors to the currency internationalization risk is of great importance. The paper sums up the "three abilities, three patterns, three external environment" from both economic and non-economic angles. Combined with the external shocks (speculative attacks on the fiscal and monetary policy shocks) and financial risk (external risks, the bank's credit risk, financial and regulatory challenges) presently faced by RMB internationalization, the paper also analyzes the situation of RMB capital controls and its unsustainability in its process of internationalization. It also concludes that increasing the degree of free convertibility for RMB capital projects is the trend of RMB internationalization. Moreover, its increase must be a gradual process, which firstly opens up the subprojects that do not generate much pressure on currency exchange, and at the same time gradually gets rid of the "ternary conflict, resource allocation conflicts, the competitiveness conflict" resulted by the pegged exchange rate institution. In this context, conducting an in-depth analysis on the potential risks involved in the RMB's participation in the currency internationalization competition is important to provide strategy for its better participation in currency internationalization competition and intemalization risk prevention from the domestic and international view of economic,non-economic and risk shocks, based on the type of the risk of RMB internationalization.Because the researches at home and abroad in currency internationalization mechanism have already been very mature, according to its topic, this article focuses on the inherent logic between its chapters, under the structure of currency internationalization competition and risk, combines the use of analytical methods and tools in modern economics, based on the international comparison and the relevant data, conducts and strengthens the empirical research via econometric models.As for the detailed arrangement of content, this paper firstly introduces the relevant concept, connotation and theory of currency internationalization, explore the optimal monetary policy in currency internationalization competition and the corresponding risk in front of, independently analyzes "the International Monetary competition history, level of competition, competitive conditions, competition situation, competitive strategy","the connotation of currency internationalization risk, risk classification, impact factors, international experience". Afterwards, on the basis of the above analysis and guidance, the paper judges the present degree of internationalization of RMB from the angles of time, space and functions, discusses whether the RMB has the conditions for the currency internationalization competition and the plight for its participation in competition, raises the RMB internationalization strategy, and finally measures the risk faced by RMB's participation in internationalization competition, especially under the relative capital controls puts forwards the strategies for preventing the RMB internationalization risk from the economic, non-economic and the risk impact angle.