Analyses Of Causes Of Currency Substitution In China

Currency substitution is an unavoidable situation as the world economy is developing so fast, any country joined in the international trade or other ways of communication, currency substitution pops out immediately. Ever since sixties of last century, this situation became so serious and common that it has drawn the attention of many economists. As China is developing steadily, with more marketing policies taken in the exchange rate policies, etc, RMB is going to join the serious world currency competitions. As many regulation differences existing, western theories cannot be borrowed directly to explain situations in China, we must have our own suitable theories and models to explain our own problems.Basing on studies and conclusions of different theories existing now, this paper constructed a new model to explain the currency substitution situation in our county. The author has collected the seasonal data for the period since 1994 to 2008, and has done the VAR test, GRANGER test, etc to study the contribution of different factors to this situation, and has drawn the conclusions as following: there exists a stable relationship between the currency substitution, inflation, real exchange rate, economy developing level and interest differences in the long term, while in short term GDP has positive effect on currency substitution and interest has the negative one, others being not obvious.The paper closed with a brief discussion on the problem of RMB's regionalozation. By analyzing the goods and costs of RMB's internalization, the paper has suggested some policies that may be taken to stimulate its further development.