RMB Cross-Border Trade Settlement Studies

RMB cross-border trade settlement has rapidly developed in scale and coverage since its pilot run in July 2009. It also demonstrates significance in pioneering the internationalisation of RMB. However, RMB cross-border trade settlement is still in its early developing stage as indicated by the following facts:the total transaction volume of RMB cross-border trade settlement to China’s total volume of imports and exports is relatively low; the transaction coverage is not evenly distributed, transactions have been mainly occurred in China’s neighbouring countries and regions.Based on the theoretical framework of choice of settlement currency in international trade, this dissertation analyses the development, status-quo of RMB cross-border trade settlement and potential barriers to its further development. The variables in the VAR model to decide the outcome of RMB cross-border trade settlement is comparable to similar studies in Japan’s previous attempt in Yen’s internationalization. The result shows that in addition to conventional factors such as China’s trading scale and structure, the stability of RMB exchange rate and the relation of RMB to traditional international settlement currencies, there are additional factors in abundance to influence the development of RMB cross-border trade settlement. To achieve the in-depth expansion of RMB cross-border trade settlement, China needs to strengthen its overall economic power, accelerate the transition of its trading structure, complete reform of monetary system and develop RMB’s overseas market. In addition, as RMB is in its embryonic stage of becoming an international settlement currency, developing RMB cross-border trade settlement has challenges from both domestic and international trade and financial market. More sophisticated risks factors such as market arbitrage induced by the fluctuation of RMB exchange rate are inevitably influencing the outcome as well. On the back of the internationalisation of RMB, analytical rigor to the interactive relationships of different factors is essential for policy makers to facilitate a better development of RMB cross-border trade settlement; Short term allowances should also be given to certain speculations.Risks control of RMB cross-border trade settlement through stricter supervision would also provide stable internal environment for RMB internationalisation.