Study On The Influence Of China's Foreign Exchange Reserve On The Internationalization Of RMB

The relationship between the scale of China's foreign exchange reserves and the degree of RMB internationalization has always been a popular macroeconomic topic.Since RMB officially joined Special Drawing Right(SDR)in October,2016,RMB-denominated assets with the needs of trade and investment held by other countries can be used as official reserves,promoting RMB further in performing its function of value in international storage.In April,2017,International Monetary Fund(IMF)announced for the first time that the official reserve share in RMB was about 1%,which indicated that the status of RMB as the international reserve currency was recognized by the international community.However,its share was extremely inconsistent with China's economy,thus there remaining a need to promote RMB internationalization vigorously.Besides,China's foreign exchange reserves have been growing exponentially since 1980s,once accounting for as much as 99%of the international reserves continuously.What's more,the sharp drop in China's foreign exchange reserves in the past a year or two has broken the fixed proportion pattern of foreign exchange reserves.It's worth exploring what influences such changes in the scale of foreign exchange reserves will have on the internationalization of RMB.Researchers mostly demonstrated the relationship between the two with qualitative analysis and they held different views towards this topic.Apart from that,there was a lack of relevant empirical studies.Therefore,a qualitative study was conducted in this paper to show how the scale of foreign exchange reserves influenced the degree of internationalization of RMB.In this paper,an overview of the literature on the scale of foreign exchange reserves and RMB internationalization was made,which laid a theoretical foundation for the empirical study conducted in the later part on the influence of foreign exchange reserves on the internationalization of RMB.Additionally,by presenting the evolution of China's foreign exchange reserves and the internationalization of RMB,the practical impact of the evolution of the scale of foreign exchange reserves on RMB internationalization was analyzed in this paper.In order to present a more accurate picture of the relationship between the two mentioned above,based on the quarterly data from 1994 to 2015,with the international bond share as the measure of RMB internationalization,an empirical model including the basic factors influencing RMB internationalization was constructed to make a qualitative analysis of the relationship between China's foreign exchange reserves and RMB internationalization by using the Gaussian mixture(GMM)method.It was pointed out in this paper that high stock of China's foreign exchange reserves would promote the internationalization of RMB at this stage.Besides,the two still showed a significant positive correlation under the influence of the global financial crisis in 2008 and the fluctuation of RMB exchange rate.Consequently,a conclusion was come up with that the scale of foreign exchange reserves was positively related to the degree of RMB internationalization,and some relevant policy recommendations were also put forward in this paper to promote the internationalization of RMB.