Influence Factors Of Currency Internationalization

International currency is a multidimensional concept. It serves as the settlement currency in international trade and the investment and financing currency in international financial market. Furthermore, it is an important international reserve for governments. Currency internationalization is the realization process of the multidimensional concept. It is an inexorable product when the comprehensive national strength develops to certain stage, with a vital part of the economic and financial strategies of the country.Since the Reform and Opening-up, China has experienced a sustained economic development. China’s Gross Domestic Product(GDP) increased from RMB360 billion Yuan in 1978 to RMB 58.8 trillion Yuan in 2013, with the average annual growth rate as high as 9.9%.China has become the world’s second largest economy, next only to the United States. However, it should also be noted that China’s economic growth has slowed down. The economic miracle which continued for more than 30 years would not simply continue indefinitely, many factors supporting economic growth in the past begin to change, some motivation attenuates or even becomes an obstacle to the further development of economy. In this case, China needs to actively seek and stimulate new economic growth points, break through the development bottleneck and overstep the “middle-income trap”.RMB internationalization, as an important sally port of China’s economic reform, has become one of the core strategies, which China adopts to further enhance economic openness. RMB internationalization is an important way to realize the road to revival, and a catalyst of promoting the overall reform of China’s financial market. As an important part of China’s economic operation, RMB is irresistibly and imperatively integrating into the international community. Under the circumstances, currency internationalization as well as related research has a very important practical and theoretical significance. China’s central government and the monetary authorities are accelerating the arrangement of RMB internationalization. However, according to the economic theory and historical experience, the process of a country’s currency internationalization is usually complicated and lengthy, and any problem during the process is likely to make the country expose to huge risks. It would not only cause the reversal of its currency internationalization, but also bring serious negative impacts on the economy. Therefore, it requires people to probe the influence factors of currency internationalization. The thesis analyzes the issue from the aspect of the international monetary functions and provides some useful suggestions for the further implementation of RMB internationalization.The thesis mainly includes seven parts with the specific structure as follows:I IntroductionAbove all the introduction of research background and significance, this chapter defines the currency internationalization and the international monetary function. Then, it sorts and appraises the related literatures on the factors of currency internationalization. In conclusion, it puts forward the research ideas and research content, leading the innovation of the thesis.II Theoretical Basis of the Influence Factors of Currency InternationalizationThis chapter lays a solid theoretical basis for the research of the thesis. First of all, the chapter reviews the classical theory of influence factors of international monetary, including monetary search theory, exchange structure theory, network externality and transition cost theory, the analysis based on monetary inertia and so on. The next, it conducts the literature reviews of invoicing currency theory which achieves abundant research results. Ultimately, it summarizes the above theories and provides the corresponding theoretical basis for the following empirical analysis.III Experience and Lessons of Internationalization of Major CurrencyThis chapter analyzes the significance of RMB internationalization from the perspective of the internal contradictions of current international monetary system. RMB internationalization could strengthen the competitive mechanism of international monetary, relatively increases external balance supply, and benefits the stable operation of the international monetary system. Then, it analyses the process of internationalization of major currency, including USD, DEM, JPY and EUR, sums up its experience and lessons respectively. Particularly, this chapter conducts comparative analysis on Japanese Yen and Deutsche Mark, summarizing the reasons of its contrasting fate. The author argues that there are three main reasons for the gap between these two currencies. Firstly, the continuous appreciation and strong fluctuation of Japanese Yen inhibited the effective role of its international monetary functions. Furthermore, in the Asian Financial Crisis, the Japanese government took a laissezfaire attitude towards Yen which hurt its credibility. Secondly, the two countries held different attitudes towards regional cooperation, resulted in different effect. Thirdly, the enterprises in Japan and Germany played different roles in advancing their currency internationalization. Based on the above analysis, this chapter finally preliminarily summarizes and extracts six important factors which influence currency internationalization, including economic aggregate, trade volume and structure, development degree of financial market, currency value, political factor and monetary inertia.IV Analysis of Influence Factors of Currency Internationalization— From the Perspective of Invoice CurrencyActing as an invoice currency is considered to be a starting point and cornerstone of the currency internationalization in international trade. It could judge currency internationalization progress and level on a larger scale which is a very important step and unavoidable component part of monetary internationalization research. This Chapter starts from the research of distribution and related experience of invoice currency of USD, DEM and JPY. Then it analyzes and demonstrates the influence factors of invoice currency functions on the basis through the panel data, including economic power, country-specific factors, transaction cost, international trade and currency. Eventually, it puts forward some specific measures of improving the international status of invoice currency, such as enhancing economic power, expanding trade scale, maintaining exchange rate stability, promoting the development of financial markets, optimizing trade structure and encouraging the use of local currency.V Analysis of Influence Factors of Currency Internationalization—From the Perspective of International Financial TransactionsBoth international exchange market and international bond market are significant components of international financial market. International currency mainly acts as vehicle currency in international exchange market, meanwhile as the investment and financing currency in international bond market which is considered to be the main application domain. At the beginning, this Chapter analyzes the distribution of the major international currency in international financial transactions. In the next place, it focuses on international bond market, discussing the influence factors of currency choice from the perspective of theory and practice. It draws the conclusion that risk management, cost factor and market structure has key effect on currency choice in this field. In the end, it puts forward some specific measures of improving the degree of currency internationalization in international bond market, involving open wider, enhancing the capacity of absorption of transnational corporations, controlling interest cost, improving the capability of expectation management of exchange rate, enlarging the depth, breadth and internationalization degree of the domestic bond market.VI Analysis of Influence Factors of Currency Internationalization—From the Perspective of Reserve CurrencyTurning into a reserve currency is the highest stage of currency internationalization, and also a significant measure standard of currency international status. Thus, it is very important to research the influence factors of currency internationalization from the perspective of reserve currency. Firstly, this Chapter analyzes the current situation of major international currency when it functions as exchange reserve on the basis of holding motivation and diversification causes. Secondly, it studies of the influence factors of exchange reserve function of international currency from three aspects, namely, safety, liquidity and profitability. Furthermore, it demonstrates the main influence factors through panel data in the third part which further verifies economic power, inflation, the degree of openness and development of financial market, exchange rate trend and interest rate difference are key factors to affect the status of international reserve currency. Lastly, it puts forward some specific measures of improving the status of international reserve currency, such as enhancing national comprehensive strength, keeping economic development healthy, maintaining currency stability, making capital account open moderately, and promoting the development level of financial market.VII Progress and Strategies of RMB InternationalizationThis Chapter firstly analyzes the progress of RMB internationalization from three aspects, including the current situation of RMB serving as international monetary, the logic of Chinese government when promoting RMB internationalization and the present stage of RMB internationalization. Then, it puts forward Matrix condition of currency internationalization. On the basis, the author raises its views on urgent work for RMB internationalization. Consisting of accelerating China’s reform process so as to reduce a great deal of risks accumulated in economic system, and to maintain economic development healthy; Accelerating the further reform of state-owned enterprises to enhance the core competitiveness, optimize the trade structure and encourage the use of RMB; Cultivating RMB offshore market, conducting market reform of interest rate and improving the breadth and depth of China’s financial market, then enhancing the degree of internationalization of financial market on the basis; Strengthening financial supervision, improving the flexibility of exchange rate and opening capital account moderately on the basis.