Research On The Influence Of Exchange Rate Stability On RMB Internationalization

After the financial crisis,countries questioned the dollar as the dominant monetary system and were eager to build a diversified monetary pattern,which also provided a good opportunity for the internationalization of the RMB.In 2009,China officially launched the RMB settlement pilot of cross-border trade,marking the official launch of RMB internationalization.With the development of economy and the continuous improvement of comprehensive strength,the RMB is playing an increasingly important role in the current international monetary system,and the process of internationalization is also steadily advancing.At the end of 2021,the RMB Internationalization Index(RII)reached 5.05,and the weight of the RMB in the SDR currency basket rose from 10.92%to 12.28% in 22,all of which are the performance of the improvement of the international status of the RMB.However,due to its late start,the status of the RMB in the international arena still does not match China’s economic strength and status,and there is also a large gap between the RMB and major international currencies such as the US dollar,the euro and the British pound.In addition,the United States and Western European countries have generally implemented quantitative easing policies,raised the level of inflation,and implemented continuous trade sanctions to hedge the negative economic impact of the epidemic,resulting in the instability of the RMB exchange rate,The process of currency internationalization is blocked.Exchange rate refers to the ratio of one country’s currency to another country’s currency,which can represent the purchasing power of currency in the international market.Therefore,in the context of economic globalization and financial liberalization,when the RMB performs the functions of pricing and payment,trade settlement and international reserve in the international market,it is closely related to the exchange rate,an economic variable.However,the impact of the fluctuation of exchange rate on a country’s currency is mostly short-term and highly uncertain.Considering that the internationalization of RMB is bound to be a long-term process,the long-term stability of exchange rate has become the focus of research in the field of currency internationalization.At this stage,China also puts forward higher requirements for the stability of exchange rate in the strategic objectives of the internationalization of the people’s currency.Therefore,it is of great practical significance to study the impact mechanism of China’s exchange rate stability on the internationalization of RMB for promoting the high-quality development of RMB internationalization.This paper can be divided into theoretical part and empirical part.In the theoretical part,through reading the relevant literature,this paper defines the variable of exchange rate stability,and summarizes the correlation between exchange rate stability and RMB internationalization,as well as the influencing factors and measurement methods of RMB internationalization,providing a reference for this study.At the same time,we use the theories of exchange rate determination,currency substitution and optimal currency area to explain the factors affecting exchange rate stability and the connotation of currency internationalization and regionalization,and analyze the two mechanisms that exchange rate stability affects the internationalization of RMB.In terms of the analysis of the current situation of RMB internationalization,this paper starts from the valuation,settlement,investment,reserves and offshore market of RMB,summarizes the advantages and disadvantages of the development of RMB internationalization through the data of RMB in various functions since 2009,and describes the fluctuation of RMB exchange rate in this process,and puts forward the basic assumptions of the relationship between the two.In essence,the internationalization of RMB is the process of RMB towards the international currency.Based on this,this paper analyzes the reasons for its success or failure in the process of currency internationalization by combining the exchange rate fluctuations and currency internationalization in the development of the three major international currencies,namely the US dollar,the euro and the Japanese yen,and provides international experience reference for the internationalization of RMB.In the empirical part,this paper uses the monthly sample data from 2009 to 2022,obtains the exchange rate volatility as an alternative variable of exchange rate stability through rolling standard deviation,and introduces the real effective exchange rate index as an alternative variable of exchange rate change,selects the amount of deposits in Hong Kong’s offshore market as an alternative variable of RMB internationalization,and constructs a VAR model to comprehensively analyze the impact of exchange rate stability on RMB internationalization,It is concluded that the weak long-term stability of the exchange rate is not conducive to the internationalization of the RMB.According to the empirical conclusions,five policy suggestions are put forward,including using policy tools,carrying out the market-oriented reform of exchange rate,developing the offshore and onshore RMB market,promoting the liberalization of capital account,and strengthening international cooperation,to promote the stability of exchange rate and the improvement of exchange rate system,and achieve a new breakthrough in the internationalization of RMB.