Study On The Influence Mechanism And Dynamic Effects Of RMB Internationalization On Current Account

Since the launch of the trials policy of settling cross-border trade accounts in RMB,the internationalization of RMB has made a great promoted.As one of the important symbols of external economic balance,China’s current account has maintained a large surplus for a long time in the past,and it has shown a steady decline in the process of RMB internationalization.It is of theoretical and practical significance to explore the impact of RMB internationalization on current account in order to maintain the balanced development of external economy and carry out RMB internationalization prudently.This paper firstly analyzes the changes and imbalance characteristics of current account in the historical cycle of RMB internationalization.Secondly,From the perspective of international monetary function,we explain the impact mechanism of RMB internationalization on current account in detail.Thirdly,We empirically study the dynamic impact of RMB internationalization on the current account and its core sub-account,using a time-varying parameter autoregressive model and considering the international settlement and valuation functions.Finally,this paper puts forward the corresponding policy implications based on the empirical conclusions.The empirical conclusions and policy implications of this paper are as follows:1.The volatility and imbalance degree of China’s current account have been decreasing with the development of RMB internationalization.The internationalization of RMB has gone through three stages of“preliminary preparation”,“rapid progress”and“steady development”,forming a complete cycle.During this cycle,the current account changes and imbalance characteristics are different.In the “ preliminary preparation”stage,the current account continues to accumulate surplus,and the fluctuation range increases year by year and reaches the peak at the end.During this period,the degree of imbalance was very heavy and the number of imbalance years was so many.In the “rapid advance”stage,the account balance volatility have decreased,and the degree of imbalance has weakened.During the period of “prudent development”,the current account balance drops to a relatively low scale,with a low fluctuation range and a downward trend,and in equilibrium at this time.2.The impact of RMB international pricing function and RMB international settlement function on current account is quite different.The theoretical analysis is as follows:the international valuation function of RMB can reduce the current account surplus;The influence mechanism of RMB’s international settlement function depends on the situation of RMB as the settlement currency of trade import and export.When the former is stronger than the latter,the international settlement function has a negative impact on the current account,otherwise it is positive.By the way,strengthening RMB import settlement can reduce current account surplus,while export settlement is the opposite.3.The international pricing function of RMB negatively affects the current account,while the international settlement function positively affects the current account,and this effect shows the characteristics of dynamic fluctuations.The empirical analysis results show that:from the static perspective,the impulse response of the unit pricing function of RMB shock to the current account is significantly negative;The impulse response of the unit export settlement function of RMB shock to the current account is significantly positive,while the import is negative,and the intensity of export settlement is higher than that of import settlement.From a dynamic perspective,In the process of promoting the internation--alization of RMB,the strength of the settlement function of RMB is weakening,while the valuation function of RMB has no significant change.In addition,the impact strength of the valuation function is higher than that of the settlement function.4.Under the influence of RMB internationalization,investment income account is most likely to become an important pillar to support current account surplus.Further exploring the impact of RMB internationalization on the core sub-account,we find that only the investment income account can increase the net inflow in the long run in the future.The performance is as follows:the valuation function of RMB can increase the investment income account surplus,the settlement function of RMB will reduce the account surplus,the former intensity is significantly higher than the latter;The valuation function of RMB has a relatively stronger negative impact on the goods trade account;Both settlement and valuation functions have a significant negative impact on the trade in services account.Based on the above conclusions,the policy implications are as follows:if China needs to increase its international purchasing power by means of current account surplus,we should give full play to the international settlement function of RMB to maintain moderate current account surplus;Moreover,with the continuous promotion of RMB internationalization,it is also necessary to carefully guard against the continuous impact of the alternating fluctuations of the “ forward and reverse transformation ” of the current account.The promotion of the valuation function of RMB should be steadily promoted according to the principle of“seeking stability rather than fast”.At the same time,we still need to pay attention to the internal structural changes of the current account and improve investment returns.When the RMB jumps from the international“settlement currency”to the“invoicing currency”,the investment income account will serve as the core sub-account of the accumulated current account.This paper theoretically analyzes several influencing mechanisms of RMB internationalization on the current account,empirically examines the dynamic effect of RMB internationalization on the current account comprehensively,and discusses the difference in the impact of RMB internationalization in different periods,which enriches the existing literature.However,due to the limitations of research energy and ability,as well as the shortcomings of research methods and samples,the paper does not study the international reserve function of RMB,which will be improved after the subsequent supplement of relevant data.