Research On The Influence Factor And Path Of RMB Internationalization

From 1990's,the issue of RMB internationalization has gained widespread concern in academic world home and abroad.As the practice evolves,scholars did comprehensive and thorough research from different angles of view.In general,research on the issue of RMB internationalization,which analyzes its implementation conditions,cost & revenue and risk countering etc.,their ultimate stance is to research how to boost and implement the RMB internationalization,namely the path selection of RMB internationalization.RMB internationalization is the route,mean and path to achieve the goal of internationalization of the RMB,it demonstrates the dynamic process that the RMB evolves into an international currency.However,the premise of path planning is to focus on the main factors that influence RMB internationalization.Current research on RMB internationalization has shaped a certain level foundation yet with three flaws: Firstly,the research on the path of currency internationalization is mainly studied upon the experience of the internationalization of currencies of developed countries such as USD and EUR,contrasted by the lack of those upon the experience of developing countries,and the scatter of those upon the influence factors and the paths of currency internationalization.Secondly,the planning and designing of the path of RMB internationalization are relatively macroscopic and over-general.As well as in direction,they were restricted to “dual-track system” or “three-step” strategy,following the traditional progressive path of settlement,pricing,investment and reserve functions in international function evolution,and the de velopment principle of peripheralization,regionalization and internationalization,without further optimizing as the practice evolves.Thirdly,their studies on the dynamic and influence factor of all variables of RMB internationalization are insufficient.More in qualitative analysis,less in empirical research,and lack of a complete top-level system design and practical risk control measures.The eruption of international financial crisis in 2009 has triggered the debate on reform of international monetary system again,an objective demand of RMB settlement has surfaced in foreign market,which was a rare chance for RMB internationalization.China government comply with such demand by implementing cross-border RMB settlement and bilateral monetary cooperation,etc.,and the extent of development of RMB internationalization was beyond the expectation of all walks of life.The joining of SDR currency basket and the establishment of Silk Road Fund and Asian Infrastructure Investment Bank(AIIB),as well as the construction of “One Belt,One Road” are increasing the power of RMB internationalization.In the context of ever-changing international political and economic landscape,research on the influence factor and path of RMB internationalization will serve both the outward of China's economic and the practice process of RMB internationalization,and of great significance in theory and practice.Centering on the two key words “influence factor” and “path”,this paper applies methods of theoretical research and empirical analysis to explore the general rules,influence factors and methods of achieving the goal of RMB internationalization from the theories of currency selection of cross-border trade pricing,optimum currency area,etc.,to the practice of actual currency internationalization.From the angle of political-economic,the paper analyzes the role of the government and market in the path of RMB internationalization,clarifies that only with the joint work of general demand of the market and positive support from the government,could it possible to realize the RMB internationalization,and points out the necessity of path designing in RMB internationalization.This paper also analyzes the differences among the paths of internationalization of British Pound,US Dollar,Euro and Japanese Yen,along with their inspiration to RMB internationalization,and points out the direction of the pathing of RMB internationalization.A SWOT analysis of RMB internationalization has been carried out considering current situation and internal-external environment of RMB internationalization,to summarize the strengths,weaknesses,opportunities and threats of present-day RMB internationalization.Based on the actual development of RMB internationalization,this paper empirically researches the influence factors of RMB internationalization,and makes brand new design of the path of RMB internationalization in combination with the result of said research.This paper possesses three major innovation points: Firstly is to examine,rationalize and summarize the situation and environment of RMB internationalization in an all new context and angle of view in close integration of its practice development,this paper puts forward a quaternary development pattern including boosting cross-border RMB settlement,promoting offshore market,binary opening of financial market and monetary cooperation.The paper defines the development phases of RMB internationalization,and the peculiarity of the path of it,and analyzes the bottleneck and influence factors of current RMB internationalization.Secondly,for the first time,the amount of cross-border RMB settlement is used as the proxy variable of RMB internationalization level for empirical research.The explained variables cover the whole current account and capital account,which are more comprehensive than isolated investigation on the RMB settlement of cross-border trade carried out by scholars in the past.The panel data is also used for the first time in the model design.The first ten countries and regions that carry out cross-border RMB settlement with China are selected from 2011 to 2017 with a total of seven years of complete monthly settlement data.The empirical research,the data range of which covers the two cycles of RMB appreciation and depreciation,is by far the most comprehensive in data adoption,and the most integrated with reality.A multi-angle empirical research on influence factors has also been applied with the implement of fixed effect model.The results show that import-export trade,foreign direct investment(FDI),outward foreign direct investment(OFDI),exchange rate,and differences in inflation,interbank offered rate,GDP growth rate and M2 growth rate between the two countries(regions),have a significant influence on the scale of cross-border RMB settlement.Variables measuring substantial economy trading like import-export or direct investment have significant positive influence on the amount of cross-border RMB settlement.While variables measuring stability of currency like exchange rate or inflation differentials have significant negative influence on the amount of cross-border RMB settlement.This demonstrates the significance of maintaining currency value to RMB internationalization,and it is agree with the theory of selecting stable exchange rate in “Mundellian Trilemma” at early phase of currency internationalization.The fact that interest rate differential has a significant negative influence,illustrates that at present,high interest rate in China is adverse to facilitate the popularity of RMB as a funding currency,thus partially demonstrates that,the pricing mechanism is not yet well-functioning.In addition,by adding lagged terms of explanatory variables,it has been verified that cross-border RMB settlement possesses significant inertial effect,indicating that RMB internationalization shows obvious path dependence.Thirdly,a brand new design of the path of RMB internationalization has been made,in combination with the result of empirical research.It clarifies the five principles of RMB internationalization,namely,to serve the substantial economy,to strive for progress in the process of stability,to give priority to local currency,to mutually benefit and win together,and to prevent risks.This paper puts forward the short,medium and long term goals of RMB internationalization in details,and combines them with China's “Two Centenary Goals” on the time node,then fully merges them into the country's overall development strategy.Design a main path of “settlement currency of trading and investment partner localization + offshore centralization + internationalization” and two auxiliary paths of “promotion of the reform and open of domestic financial markets + commodity pricing + capital account convertibility” and “promotion of regional monetary cooperation + deepening of “One Belt,One Road” construction + reform of international monetary system.” It is both a continuing of RMB developing circumstance at present,and a guidance of its direction in the future.This paper draws four conclusions based upon theoretical and empirical research.Firstly,RMB internationalization requires clear and definite path designing and planning.Secondly,substantial economy is the development foundation of RMB internationalization.Thirdly,the openness of financial market is the strong support of RMB internationalization.Fourthly,the coordination of macro-policy is the effective guarantee of RMB internationalization.At the end,upon path designing and conclusion,this paper comes up with five policy advices of boosting and deepening the development of RMB internationalization,respectively are: elevating the quality and effectiveness of economic development,as well as the localization of currency in trading and investing settlement;promoting the openness of financial market,as well as the construction of offshore and onshore monetary center;deepening the regional monetary cooperation,as well as the RMB settlement under the initiative of “One Belt,One Road”;enforcing the top-level system design,as well as the supervision capability of monetary authority.