RMB Regionalization

This paper investigates relevant problems of RMB regionalization from two aspects in terms of trade. In one aspect, quantitative analysis is made to discuss the regional economic environment for RMB regionalization in scope of macroeconomics. The theory of Optimum Currency Areas (OCA) and relative research of RMB regionalization are presented in the first part. An empirical methodology of OCA which has already been applied abroad, is used to tests the correlation of bilateral trade intensity and business cycle correlation between China and other Asian countries. To test whether economic environment of Asia is suitable for the regionalization of RMB, fifteen years of data for twenty Asian countries is used. The empirical results show that consistent correlation does exist in bilateral trade intensity and business cycle correlation between China and other Asian countries, which provide a good precondition for RMB regionalization. As the resulting trade integration of China and other Asian countries deepens, economic relevance begins to show the same developing trend. Following the above, this paper discusses feasibility and relevant effect of RMB regionalization in micro scope of trade. A comprehensive analysis of trade flow and trade pattern of Asian countries that are influenced by economic development of China is carried out to discuss the feasibility of RMB regionalization. It is shown that the development of China's economic and trade had a great influence on other Asian countries, especially in the aspects of trade flow, trade pattern and market transfer effects. These kinds of effects, which would promote trade between Asian countries to a higher level, have already provided the necessary prerequisite for RMB regionalization. Thus RMB regionalization is totally feasible in respect of trade. With trade being the driving force, we should promote RMB regionalization accompanied with proper financial reform.