Research On The Internationalization Of RMB From The Perspective Of Monetary Power

Although China has been the world second largest economy,the international use of RMB is quite limited.Since 2009,the internationalization of RMB has made impressive progress,while the absolute level is still low.From the perspective of monetary power,we reconsider the issue of internationalization of RMB.Both economic rules and political and military factors have effect on the process.Monetary power is a compound concept,including political and economic components,which could be able to reflect the underlying connotation of the internationalization of RMB.So how could a country gain the monetary power?How does one country compete with others on monetary power? How does currency internationalization affect monetary power? What are the macroeconomic consequences of China’s lacking monetary power? What is the dynamics of China’s monetary power? It is the major purpose of this dissertation to answer the above questions because all of them have important theoretical and practical sense.The concept of monetary power is defined at first of this dissertation.By extending the definition of power from Keohane and Nye(1973),we define the monetary power as the coercive power relied on the asymmetric interdependence of international monetary relations to realize economic or political objectives.Three characters of monetary power are summarized.The stylized facts of monetary power include global imbalance adjustment,exorbitant privilege of leading international currency and spillover effect of monetary policy.Following the open macroeconomic framework of Gourinchas and Rey(2007),we build a model to analyze the origin and mechanism of monetary power.The study on the competition of monetary power contains the summary of history and inference of game theory model.International monetary power structure,the outcome of monetary power competition,determines the relative status of currency in the international monetary system.Within the principal-agent frame,I analyze the motivational role of monetary power competition on the evolution ofmonetary system.The current international monetary system is broken down into three dimensions,including global reserve currency decomposition,financial effective exchange rate indicator and national external wealth.The internationalization of currency is the direct way to gain monetary power and to challenge the existing international monetary power structure.The nature of internationalization of currency is analyzed from two kinds of definition of monetary power.Universal rules of internationalization of currency are summarized by observing the historical evidence of US dollar,Deutsche mark and Japanese yen.Generally,the scale of economy is the fundamental determinant,stability of macro economy is the guarantee and the highly developed financial market is the key to the internationalization of currency.Besides,both political and military factors are significant.Lacking monetary power leads to dilemmas for China,though its economy has experienced rapid growth in 21 century.The excess accumulation of foreign reserve is the major phenomenon.For the sake to stabilize the exchange rate of RMB,China has to purchase dollar-dominated asset despite the erode value of US dollar in long term.In turn,magnificent financing from China to US external debt and current account deficit allow US to ease its monetary policy.As a result,unhedged position of foreign exchange cut the domestic value of RMB,especially in the aspect of asset price,to cause the anomaly with inflation and appreciation simultaneously.In the aftermath of 2008 global financial crisis,Fed and other major central banks carried out monetary easing policy,the emergence of global financial cycle put peripheral countries in more complicated dilemmas.Under the circumstance,internationalization of RMB is considered as the potential way to make a breakthrough,however,problems also exist.What is the status of China’s monetary power? The dissertation conducts a quantitative assessment following the methodology of Maggiori(2013).Consider the financial real effective exchange rate,the competitiveness of RMB-dominated asset is determined by global factors in short term,which means China still belongs to periphery of international monetary power structure,and by domestic factors in long term,which due to the intervention capacity of PBOC.Taking the internationalfinancial market as the natural experiment laboratory,monetary power can be measured from the perspective of international investors.The safety premium of RMB crashed during global financial crisis,but it rose moderately during the European sovereign debt crisis.Adopting the time-varying parameter model to assess the relative safety of RMB to US dollar,euro and Japanese yen,the results prove the relative safety of RMB to euro during the European sovereign debt crisis.RMB is not yet global safety currency,while its status of monetary power has been improving gradually.In conclusion,the internationalization of RMB is not purely an economic objective,but the key to reverse the asymmetric monetary relations and to gain the monetary power.To make it reality,the grand strategy of China’s peaceful rising is required.Periodic strategic objective of internationalization of RMB should be set according to the scale of economy.Some policy suggestions are proposed in this dissertation as to ensure the rapid economic growth,to maintain the stability of macro economy,to promote the depth and openness of financial market,to enhance the global political influence and to strengthen the military power.