Research On RMB Internationalization Based On Search Model

At present, the internationalization of the RMB is one of the core content of China’s financial strategy. We believe that currency internationalization, in essence, is process of that the functions of one local currency constantly extend from domestic to foreign countries. We apply a theoretical framework, Search Theory, to discuss the currency internationalization issues. We believe that the relative strength of economic and international trade, as well as conditions of convenient which support the individual cross-border transactions, are the fundamental drivers of a country’s currency internationalization. In addition, we also believe that the time cost, the degree of specialization of the economy, the currency appreciation and monetary policy, as well as friction of local trade will have an impact on currency internationalization. We also discuss the potential role of government policies on the process of currency internationalization, and that big countries may be able to adopt policies in the early days to promote the process.Empirical study shows that the strength of the economic and trade, and trading convenience are the fundamental factors which promoted the acceptance of RMB in overseas. We also found that the effects of different driving factors in different periods of the internationalization of the RMB are not entirely consistent. In the long run, we believe that the fundamental factors will still play the most important role in the internationalization of the RMB. At the same time, we believe that China should still promote and improve the policy arrangements, such as cross-border trade RMB settlement and RQFII etc.