A Study On The Impact Of OFDI On Currency Internationalization

Since the reform and opening up in 1978,China's economy has continued to grow at a high speed.In 2010,China surpassed Japan to become the world's second largest economy after the United States,and its international trade ranks first in the world.With the rapid development of China's economy and the continuous growth of foreign trade,the internationalization of the RMB has been advancing constantly.On October 1,2016,the International Monetary Fund announced the decision to add the RMB to the basket of currencies of Special Drawing Rights(SDR),which marked a significant progress in the internationalization of the RMB.At the same time,the scale of China's outward direct investment has also developed rapidly,and has become a major channel for the export of RMB after the settlement of cross-border trade.Therefore,it is of great significance to analyze the impact of OFDI on the internationalization of the RMB.As Japan and China are both East Asian countries,they have many similarities in the process of economic development and the internationalization of their currencies,and the experience and lessons accumulated in the internationalization of the Yen can also be used for the internationalization of the RMB.Therefore,we focus on the impact of OFDI on the currency internationalization of China and Japan and make a comparative analysis of the two.Specifically,this paper first sorts out the previous literature research,and then conducts an in-depth analysis of the influencing factors of currency internationalization,and concludes that the factors affecting the internationalization of currency mainly include open market economy,economic strength,trade strength,the development of financial market,the stability of the currency,outward foreign direct investment,political and military power and inertia of currency.Then it makes a detailed analysis of the influencing mechanism of OFDI on internationalization of the currency.OFDI can directly promote the development of currency internationalization by expanding the scope of international use of currency.It can also promote the internationalization of local currency by promoting the development of foreign trade,promoting the internationalization of domestic financial institutions and the development of offshore market of local currency,enhancing the international division of labor status and adjusting the international balance of payments.In addition,we also take China and Japan as an example to briefly introduce to the development history of OFDI and internationalization of the two countries' currencies,and then the influence of Japanese OFDI to the internationalization of the Yen and the influence of Chinese OFDI to the internationalization of the RMB,respectively with generalized moment estimation method(GMM)has carried on the empirical test.The results of empirical test show that OFDI has a significant positive promoting effect on the internationalization of the Yen and the RMB,which is consistent with the previous theoretical analysis.Then we analyzed the similarities differences of the currency internationalization between China and Japan.Finally,through the analysis of the full text,we can draw the following conclusions:(1)OFDI is the key factor influencing the internationalization of currencies between China and Japan;(2)the impact path of OFDI on currency internationalization is multifaceted,which can promote the export of RMB under the capital account and further promote the internationalization of RMB;(3)the similarities of currency internationalization between China and Japan are as follows : both started after the significant enhancement of domestic economic strength,faced with similar external pressure,started from cross-border trade settlement and shifted to the two-wheel drive of “trade + investment”,and both paid attend to the construction and development of offshore market of local currency.And the difference is that the road to appreciation and the choice of internationalization path are different.The corresponding suggestions are to pay more attention to accelerate the development of OFDI,continue to the steady gradual appreciation of the RMB and continue to lay a solid foundation for the regionalization of the RMB.