A Study On The Factors Influencing RMB Cross-border Settlement

In recent years, the status of China as the world’s second largest economy has become more and more important along with the remarkable increase of economic strength and the continuous development of foreign trade. At the same time, the role of RMB as an important international settlement currency has also began to highlight. From frequently used by the border trade with neighboring countries at the beginning to gradually development of RMB cross-border settlement, RMB has turned into a hard currency around the surrounding areas. Now RMB is being widely accepted by the whole world step by step. RMB has now become the world’s top ten most commonly used payment currency as being gradually internationalized. The factors, such as the RMB appreciation is still expected to maintain in the global financial crisis and the dollar hegemony exposed rampant malpractice during the current international monetary system, are creating favorable conditions for the internationalization of RMB.Since July 2009, as a necessary channel of internationalization of RMB, the RMB cross-border settlement business, has experienced a rapid development with the amount being larger and the areas being expander. But at the same time, the use of RMB in global proportion is only 1%, there still remains a wide gap comparing with the use of US dollar, euro and other major international settlement currency, the internationalization of RMB is still in the initial stage of exploration. In order to realize internationalization, RMB needs to became an international settlement currency at first during the development of cross-border settlement business, and then turns into an international investment currency during comprehensively two-way flow promotion of international capital and fully realization convertible under the capital account, and then finally becomes an international reserve currency based on marketization of the RMB interest rate and exchange rate. Therefore, in order to achieve the internationalization of RMB, there still has a long way to go. As the first and the most important step towards the internationalization of RMB, smoothly development and further study of RMB cross-border settlement business, play a significance role in solving the persistent problems of China’s economic development as well as realizing the far-reaching goal of the internationalization of RMB.The first chapter is the introduction part, describes the the purpose and significance of RMB cross-border settlement business, and then summarizes the current literature review and article on the subject for the study, then points out the corresponding innovations and insufficients. The second chapter mainly elaborates several mature theories about cross-border settlement, including currency choice theory and the theory of currency competition. The third chapter describes the current situation and problems of RMB cross-border settlement. it describes the current situation from the scale of RMB cross-border settlement, region distribution, import and export structure distribution and summarizes the present situation of the direct investment business overview, then analyzes the problems existing in RMB cross-border settlement. The fourth chapter describes the factors that influence RMB cross-border settlement. Also, this chapter shows comprehensive analysis of how various factors affect the development of RMB cross-border settlement business. Based on the analysis of the fourth chapter and after quantifying the related data, the fifth chapter mainly describes the influence from the perspective of empirical analysis by using VAR model and impulse response test method. This chapter shows a more intuitive understanding of how can the various factors, such as import and export scale, offshore market development, exchange rates, price indices and policy factors, affect the size of the RMB cross-border settlement and draw the appropriate conclusions. After the theoretical analysis and quantitative analysis of the fourth chapter and the fifth chapter, the sixth chapter is mainly based on the conclusions of the previous chapters, elaborates relevant policy recommendations to improve the competitiveness of our export business from the foundation to accelerate the economic transformation and to promote the construction of offshore RMB market exchange rate on the basis of maintaining stability on the market, and to make sure of realizing the function of internationalization of the RMB-denominated features. These recommendations are all good for the further development of RMB cross-border settlement. The final chapter summarizes the thesis. With the development of China’s economy, RMB cross-border settlement will continue to develop and and ultimately promote the internationalization of RMB.Compared with other scholars on the issue of the research, the innovation of this paper is to quantify the portion corresponding to the theoretical analysis and empirical analysis. This paper introduces institutional factors that dummies in empirical analysis, analyze the change of the amount of RMB cross-border settlement due to the policy changes in June 2010, which represent a fully expansion of the pilot areas. So the factors in this paper are more objective and comprehensive. Speaking of collecting the data, this paper selects all of the latest monthly data. After integration and analysis, the latest data can be more accurate when analyzing the factors that influence RMB cross-border settlement in the time span. However, as the author’s lack of academic skills and the difficulties of quantifying several data, the paper still cannot theoretically describe all the factors which influence RMB cross-border settlement. The analysis of this paper is only macro-level and lack of micro-level. Finally, the issues and corresponding policy recommendations cannot cover all of China’s current economic problems. All these disadvantages above need to be improved in the future study and research.