The RMB’s Cross-border Circulation And Financial Risk In The Process Of RMB Internationalization

After the financial crisis caused by the sup-prime debt, a single sovereign currency served as the international reserve currency is no longer adapt to the current situation of global economic development. Therefore, promoting the reform of international monetary system and constructing a diversified international monetary system has become mutual understanding among the international society.Now the renminbi internationalization strategy is in the important strategic opportunities perio.With the progress of renminbi internationalization, the circulation channels of cross-border RMB will continue to be broadened and the influence of RMB beyond the border will also increase. Research on the cross-border circulation of currency in the process of renminbi internationalization in this paper not only helps to understand the situation of the renminbi internationalization, grasp the regular pattern of currency internationalization and minimize the financial risk in this process, but also provides a basis for policy decision, steadily push forward the process of financial system reform and internationalization of the RMB. Hence, the study on this topic is of great economic and social significance.On the basis of theoretical analysis of currency internationalization, cross-border circulation channels, conditions, causes and financial risk, this paper summarized the lessons from the internationalization process and cross-border circulation of the U.S. dollar, Euro, German Mark and Japanese yen currency. After the theoretical analysis and country experiences summarize, combined with the strategy of the RMB internationalization, this paper analyzed the current state, the path arrangement, the main problems and the financial risks in the cross-border circulation of RMB. Then this paper proposed suggestions on how to further promote the RMB cross-border circulation based on previous analysis conclusions.This paper includes six chapters:the first chapter is the introduction. First of all, this chapter describes the background and research meaning of this article. Then the article summarizes the current research situation of RMB internationalization and cross-border circulation. Finally, this chapter points out the innovation and deficiency of this paper. The second chapter is an overview of the theory related to the currency internationalization and cross-border circulation.Theories on implications, extension of currency internationalization, causes and risks of monetary cross-border circulation are discussed in this chapter. The disscussion lays the foundation for the following research. The third chapter reviews the history of major international monetary such as U.S. dollar, the euro, the German mark and the yen. The paper discusses the characteristics of currency cross-border circulation in different stages of currency internationalisation, and sums up the risks of currency cross-border circulation and countermeasures which provides experience for guarding against the yuan cross-border financial risk. The fourth chapter researches on the present situation of RMB cross-border circulation combined with RMB policies. This chapter uses a variety of methods to measure the scale of RMB foreign circulation and analysis the risk in current RMB cross-border flow channel, model and motive. Chapter five analysises the balance sheet effect and the impact on domestic macro financial control of RMB cross-border circulation mainly from the perspective of cross-border flow, oversea use and offshore local currency market. Based on the relation between offshore yuan price and the on-shore price, this chapter uses the contingent claim analysis method to assess the risk of offshore RMB exchange rate fluctuations. The sixth chapter sums up the major research conclusion of this article, and puts forward the proposals to promote the local currency internationalization and cross-border circulation based on the current problems and risk.The research indicates that RMB is substituting foreign currency under the inverse Gresham’s law, the renminbi cross-border circulation mode has preliminary formed with trade channel net outflow and the capital channel net inflow. In the last few years, the cross-border RMB circulation scale has increased quickly. Howeve, there are structural problems in the present cross-border circulation channel and a lot of speculative factors drive the RMB cross-border flow. Current cross-border circulation pattern also does not match with RMB internationalization situation which is unfavorable for the improvement of China’s foreign assets and liabilities structure problems. Besides, overseas currency circulation mainly concentrated in southeast Asia and the external circulation pattern on the offshore RMB market has not completed. Compared to other international currency’s overseas circulation level, the ratio of renminbi oversea’s circulation is much lower, the yuan’s cross-border circulation is still in the primary stage. And in current cross-border trade settlement, the use of RMB keeps low proportion which needs to breakthrough currency use "inertia" in the current international trade settlement to strive for a bigger share of local curreny settlement in the international trade.After comprehensive analysis the impact of the RMB cross-border circulation, this paper argues that the yuan’s cross-border circulation will cause macro financial policy effect decrease, weaken the capital account control efficiency, increase financial market volatility risk and the cross-border RMB management difficulty. With the scale of RMB foreign circulation continues to expand, yuan may also face Triffin dilemma under the credit monetary system. The use of renminbi in the cross-border trade settlement pushed Hong Kong area become the offshore RMB centre, the credit create function on the offshore yuan market will cause adverse effect on the yuan liquidity management in the future and the fluctuations of offshore yuan market price will also become an important source of mainland financial risk.Therefore, the development of renminbi cross-border circulation is accelerating and there is still much room in the future, but there are many problems and risks in practice and in theory. China needs to arrange several coordinated measures to promote local currency cross-border circulation, constantly improve the fhinacial management mode, reduce the potential risks of renminbi cross-border circulation, and steadily promote local currency cross-border circulation to upgrade the level of RMB internationalization.