The Effects Of Currency Substitution And Anti-Currency Substitution On Real Effective Exchange Rate And Volatility Of RMB

After the financial crisis, people pay more attention to the issue of RMB internationalization, and China begins to think the issue of RMB internationalization from the national strategic perspective, and also takes a series of positive actions to accelerate the process of RMB internationalization. However, RMB internationalization is not merely a course of currency exchange and the change of flow conditions, but a comprehensive reform of economic and financial fields. During the course of RMB internationalization, it will lead to huge economic and financial risks if any link does not match, such as risk of capital flow, risk of independence of monetary policy, especially, the risks of currency substitution and anti-currency substitution, it will lead to the reversal of the process of RMB internationalization easily, so we must pay more attention to it and take actions to prevent it.At first, this paper summarizes the existing literature, and analysis the shortcomings, and based on them, the research content of this paper is the analysis of effects of currency substitution, anti-currency substitution on RMB effective exchange rate and its volatility in long and short-term. Finally, this paper puts forward policy suggestions of the risk of currency substitution or anti-currency substitution during the course of RMB internationalization, to maximize the interests of the internationalization of RMB, so as to realize the goal of national competitiveness and international status.Consequently, this paper analyses the influence of currency substitution and anti-substitution on real effective exchange rate and volatility of RMB by using China’s monthly data from January of2002to December of2011. The results are as followed. In long term, the influence of currency substitution and anti-substitution on RMB real exchange rate is negative, but no between the volatility of RMB real effective exchange rate and currency substitution and anti-substitution. In short term, the influence of currency substitution on RMB effective exchange rate is negative, and which of anti-currency substitution is positive. Because of the existing of rigidity of money market and stickiness of prices, the long data influences is bigger than in short term. Others, the influence of currency substitution on volatility of RMB exchange rate is negative, and which of anti-currency substitution is positive.