A Study Of Triple Currency Stability Mechanism On RMB’s Internationalization

The triple currency stability researched in this paper refers to Domestic currency stability (stable price level), the actual foreign currency stability (the real exchange rate stability) and real time value of currency stability (the real interest rate stability).In this paper, we will define the essence of currency internationalization as the process of achieving the triple currency stability, and the consistence of the triple currency stability will influence the currency internationalization and domestic macroeconomic stability. In the process of internationalization of RMB, the triple currency stability of RMB will be of crucial impact on currency internationalization, financial stability and the smooth operation of macroeconomic. On the basis of currency stability theory and existing literature, a depth exploration of the mechanism of triple currency stability is conducted from the aspects of theoretical framework, available experience and empirical analysis.The exploration of theoretical framework indicates that triple currency stability does not mean that the price level, the real exchange rate and the real interest rate are fixed, but emphasizes the of the stability of the volatility amplitude of the three aspects; and that it does not denote stability simultaneously, but emphasize the coordination and interaction of them. Inflation targeting is superior to monetary targeting and exchange rate targeting in monetary policy, for the latter two are susceptible to trigger greater inflation volatility (Svensosn,1997). Domestic currency stability is the core objective of monetary policy, the nominal exchange rate and the nominal interest rate was more of a monetary policy tool, and the real exchange rate, real interest rate stability is a significant target of monetary policy (Chin, et al,2009).The experience of currency internationalization shows that this process is correlative with a country’s economic strength, and with the liberalization of the country’s capital accounts and the degree of perfection of the financial system. And that the chosen of different monetary policy for the management of the exchange rate system will play an important role on the results of the currency internationalization. Drawing on the experience of the German mark and the yen internationalization lessons, China’s central bank should focus on maintaining domestic stability of the currency in promoting the internationalization of the RMB that is to maintain a stable price level in the choice of exchange rate regime and monetary policy.In the part of empirical analysis, we select the panel data of50countries (covering22industrialized countries and28developing countries) from the year1980to2011. Based on GARCH, PVAR models, the paper studies the decision mechanisms and coordination mechanisms of currency stability. Besides, the paper chooses quarterly time-series data from1994-2014of China in order to study the implementation mechanisms of triple currency stability based on VAR model. The conclusion is that:(1) there exists interactive situations of the triple currency stability, which are determined by macroeconomic, monetary policy, economic system and economic crisis, etc.(2) Domestic currency stability, the actual foreign currency stability and real time value of money stability are obviously correlated to each other. The domestic currency instability is more likely to cause foreign currency instability and real time value of money instability.(3) The fiscal policy tools such as fiscal expenditure growth will exert different effects on the three currency stability of RMB, and the same as the monetary policy tool such as the broad money growth rate and interbank lending rates.The inspiration from the conclusion is that the objectives of central bank should shift from the single domestic currency stability to the triple currency stability when formulate policies in promoting the internationalization of the RMB. Moreover the central bank’ policy-making should focus on the target of money supply and interbank interest rate, combined with the target of fiscal expenditure to achieve the triple currency stability by adopting the monetary policy and fiscal policy. Besides, during the implementation of the policy, domestic currency stability should be treated as the principal purpose by keeping the stability of price level, and achieving real time value of money stability and foreign currency stability based on domestic currency stability.