The Research On RMB Sross-border Settlement

After the U.S. subprime mortgage crisis，the shortcomings of the internationalmonetary system gradually emerged. Crisis may spead in the international more easily.China also faces the risk of shrinking foreign exchange reserves. RMBinternationalization becomes an important way to resolve current difficulties andexpand our influence. In July2009, RMB cross-border settlement put into practice. Ittaked the first step in the internationalization of the currency. Shanghai、Guangzhou、Shenzhen、Zhuhai、Dongguan and Hong Kong、Macao、ASEANcountries become Pilot areas.In second half of2009, the amount of RMB cross-border settlement is3.58billion yuan which is less than expected. With the implementation of the policy, insideand outside organizations become familiar with the RMB settlement and theexpansion of RMB pilot, that amount rise to2080billon in2011. Beijing andGuangdong have the largest settlement amount. Because of geographical specificity,and the construction of offshore yuan market, Hong Kong has become the regionoutside which has the largest amount of RMB exchange with the Mainlang. In thebeginning, there is a clear net outflow of RMB. To the second quarter of2011, the lowproportion of income ang payment has been improved.Except for Seigniorage income, promoting trade and investment and financingwith settlement countries, RMB cross-border settlement can also provide a wide rangeof market for reference, in order to help achieving a reasonable exchange rate range ofRMB. However it will bring some cost inevitably. For example, it can affect theindependence and effectiveness of China’s domestic policies, bring impact to domesticfinancial markets which is not ripe yet. While the benefits outweights the cost.RMB cross-border settlement is gradually improving.There are some problems appearing in RMB cross-border settlement. We willface some difficluts in exchange control. RMB cross-border settlement becomes anew factor which promotes the growth of China’s foreign exchange reserves. RMBoutside has appreciation trend. The lack of RMB back channels, the right of domesticenterprises to choose settlement currency, the necessary experience of the bankin service, which restricting the amount of RMB settlement.This paper makes relevant policy recommendations from macro and micro aspectconcidering the currency choice theory and China’s national conditions. In macro we should reform China’s exchange rate system, improve the RMB back channels,strengthen the confidence of foreign institutions, enhance the RMB offshorefinancial center, with policy support. In micro, enterprises should enhance the corecompetitiveness to improve the status in foreign trade. Domestic bank should learninternational experience from international bank to improve the ability to service forenterprises.