Historical Experience And SWOT Analysis For RMB Internationalization

As China’s position in the world economy strengthens, it is becoming all the moreapparent that it is not matched by China’s standing in the international monetarysystem and by the importance of the RMB on the global stage. Since2009the StateCouncil announced the policy of RMB settlement of cross-border trade, RMBinternationalization has accelerated and achieved a substantive stage of development.With the fast development of economic globalization, RMB internationalization isbecoming a major issue.Beside the prolegomenon and the conclusion, the whole essay divided into threechapters. The briefly introduction of main contents as following:Firstly, this paper analyses the definitions and basic roles of currency. As specialistshave long recognized, the currency involves the familiar three functions-medium ofexchange, unit of account, store of value; similarly, the international currencies’ rolesusually separated out these three at two levels: the private market and official policy.We summarize the theories of the currency internationalization, and find out that theinternationalization of a currency denotes the role(s) that a given currency mayperform outside its own national geographic area. As the link and rules betweendifferent currencies, the international monetary system, which including the set of rules,norms and institutions that govern the world’s currencies and the flow of capital acrossborders, was going through the gold standard, the Bretton Woods Era and Jamaicasystem and it is really needed to get some reform for being able to cope with continuedfinancial globalization and a wide growth gap between rich and emerging markets.At any given time, only a few national currencies tend to play any international role atall. Even fewer play all six roles, and even fewer still are used on a truly global scale.In the second part of this essay, we try to look into the history about the differentinternationalization path of pound sterling, United States dollars, Japanese Yen andEuro and sum up the fundamental determinants of currency internationalization, aswell as the specific factors which limit the process. Particularly, the rising of poundsterling or rapid ascent of the US dollars could attribute to the currency producer’seconomy size, the failed experiences of Yen’s attempts could impute to the lack offinancial system build and reform, the Euro provides an example of an historic creationhow to achieve the goal of international currency. As our studies, the universal factorswhich drive the international currency status are economic size, confidence in the currency producer and depth of financial markets.In the third part of this essay, we use the SWOT analysis to ponder the presentsituation of RMB internationalization, which means from the view of the RMBinternationalization’s strengths, weaknesses, opportunities and threats. Firstly, asone of the fastest growing economies in the world, China has strong economic powerand huge foreign exchange reserves, which will support the RMB going global.Secondly, the global competitiveness index reflects that China still face deeper-rootedchallenges on the liberalization the capital account and development of its financialmarkets, particularly the depth, liquidity, dependability and openness. Thirdly,China has ranked second in economic aggregate and first in trade volume, which isinevitably accompanied by the demand of the RMB become international currency indifferent roles. Finally, the internationalization of RMB will face the threats from thehegemony (the Dollar), challenger (the Euro) and some second-tier contenders.After considering all the aspects above mentioned, we will conclude thatthe internationalization of the RMB is a general trend and a long-term task. AlthoughChina has made a distinct push for it during the last five years and became a growingde facto regional important currency, in the near future, it is still at an early stage andthere are many steps need to be taken to spread the use of the RMB in internationalpayments and financial transactions. China should take pragmatic and steady stepstoward the goal and integrate it with the ongoing financial reform in China.