Cross-Border Circulation Of RMB And Its Impact On Domestic Macroeconomy

With the continuous improvement of China’s economic power and comprehensive national strength, the circulation scale of RMB in the peripheral and international markets has been expanding constantly and exerting the international monetary function gradually by virtue of RMB’s stable currency value and good reputation. Cross-border circulation of RMB is the basis and primary stage of the internationalization of RMB and it is the result of spontaneous choice of overseas market. Through estimation of the amount of RMB cross-border circulation, the studies on the impact of cross-border circulation of RMB on China’s economic internal and external equilibrium and on the effects of the implementation of monetary policies under the circumstance of gradual increase of the scale of cross-border RMB circulation will be significant for the implementation of China’s macroeconomic regulation and control policies and Central Bank’s monetary policies.The first chapter of this paper expounds the background of RMB cross-border circulation and the progress of its internationalization, indicating that the impact of RMB cross-border circulation on domestic macroeconomy cannot be ignored under the circumstance of gradual increase of the scale of RMB cross-border circulation.The second chapter qualitatively discusses the returns and risks of RMB cross-border circulation. At the micro level, returns of RMB cross-border circulation include strengthening enterprises’capability in international trade, enhancing the competitiveness of domestic financial institutions, increasing the convenience of domestic residents, etc. The macro-level returns include enhancing China’s international influence and promoting the construction of RMB offshore financial center in Hong Kong. The risks of RMB cross-border circulation include "triffin dilemma", increasing risk of cross-border capital flow, and weakening the effects of monetary policies, etc.The third chapter measures and analyzes the scale of RMB cross-border circulation. Indirect measurement method is adopted. Based on the data from 1996to2005and through building domestic money demand model, this study measures the change trend of the scale of RMB cross-border circulation after2005. Conclusions are drawn that there is an overall rapid growth of the scale of cross-border RMB circulation after2005, but the scale decreased due to the financial crisis in2008and the international shorting forces in2011. Due to the gradual increase of the scale of RMB cross-border circulation and with the existence of capital control, the promotion of RMB internationalization needs the support of offshore financial market. With a variety of advantages, Hong Kong has become the optimal choice for constructing RMB offshore financial market.The fourth chapter analyzes the impact of RMB cross-border circulation on internal and external equilibrium. The positive effects include promoting economic growth, curbing inflation, and reducing current account surplus; negative influence is reducing the scale of FDI absorption. Through inserting the factors of RMB cross-border circulation and RMB off-shore market in Hong Kong into the IS-LM-BP model, results are found that the two factors can weaken effects of the implementation of domestic monetary policies, and the larger the scale of cross-border circulation, the more remarkable the weakening effect.The fifth chapter is conclusion. The returns of RMB internationalization coexists with its risks, but returns outweigh risks. The promotion of RMB internationalization can be carried through enhancing national economic strength, strengthening RMB cross-border trade settlement, gradually opening capital account, perfecting RMB back-flow mechanism and constructing RMB offshore financial market in Hong Kong, etc.