The Empirical Study Of Factors Affecting Rmb Internationalization

After considering the internationalizations of the five international currencies, namely the pound, the dollar, the mark, the euro and the yen, this paper discovers fundamental determinants of RMB internationalization. As measured by international reserve share, the econometric model of determinants of international currency is proposed and estimated, and RMB share of international reserve in20years is predicted.The review of the internationalizations of the five currencies finds that the rise of one international currency is accompanied by historical opportunities; besides, the size of the home economy, the development of financial market and the confidence in the value of the currency are three fundamental determinants. Indeed, present China has a long way to go in the latter two aspects. Through empirical study, this paper finds that GDP, degree of capital account opening, volatility of exchange rate and monetary inertia have significant effects on international reserve share. Furthermore, the influence of monetary inertia is weakening after the emergence of the euro, which is favorable for RMB to challenge current international currency as a reserve currency. Through the scenario simulation, the paper discusses the predictions of RMB share of international reserve in20years. RMB is expected to gain20percent at best, which requires sustained and rapid economic growth and fast capital account opening. Considering these findings, it is suggested that China should seize the opportunity of the post financial crisis at present by promoting the opening of capital account and the development of domestic and offshore financial markets while China’s economic output and trade volume to be the number one in the world, so as to be the three international currencies with the dollar and the euro.