Study On The Impacts Of Outward Foreign Direct Investment On Currency Internationalization

Since the reform and opening up,China's economic strength has been continuously improving.However,the international status of RMB does not match the world influence of China's economy.The financial crisis in 2008 caused the influence of US dollar and Euro to decline.Once again,the international community is concerned about the reform of the international monetary system.With this opportunity,the Chinese government quickly attacked and actively promoted the internationalization of RMB.Since the implementation of RMB cross-border trade settlement in 2009,RMB internationalization has made substantial achievements.RMB joined the SDR,with a weight of 10.92%higher than the Japanese yen and pound sterling ranking third in October 2016.The IMF expanded the composition of the official foreign exchange reserve currency and listed the RMB foreign exchange reserve separately for the first time in March 2017.At the same time,our strategy of opening up has changed from "trade" to "investment",and enterprises have accelerated the pace of going out.China's OFDI has entered a golden age of development since the strategy of "the Belt and Road" in 2013.By 2016,China's OFDI flows had reached 196.15 billion US dollars,an increase of 34.7%over the same period of last year and accounting for 13.5%of the world's total.China's OFDI flows ranked second in the world,second only to the United States,and the world's sixth largest stock.With the change of China's opening up pattern,the path of RMB internationalization has been readjusted."Enterprises 'going out' + RMB capital export" has become a new main line leading the further development of RMB internationalization.From the perspective of the development of international monetary,the process of currency internationalization is generally accompanied by a large number of OFDI from the home country.In this process,the government will promote its currency internationalization through formulating policies to promote OFDI.However,the research on the influencing factors of currency internationalization mostly focuses on economic strength,trade strength and so on.Few scholars study the impact of OFDI on currency internationalization.Based on this,this paper will mainly discuss the role of OFDI in currency internationalization.Inspired by some scholars' research on currency internationalization in stages,this paper divides the stage of currency internationalization into early,middle and late stages,and discusses in detail the role of OFDI in different stages of currency internationalization.On the one hand,this study complements the existing theory of currency internationalization,on the other hand,it provides guidance and reference for further promoting the development of RMB internationalization.Firstly,this paper studies the concept and theoretical basis of currency internationalization.Secondly,this paper analyzes the basic fact and mechanism of the impact of OFDI on currency internationalization.It is found that in the process of major international monetary development,there is a large increase in OFDI from home countries.On this basis,this paper analyses the impact of OFDI on currency internationalization from both direct and indirect aspects.OFDI can directly trigger currency multiplier effect,currency settlement aggregation effect and currency substitution effect and strengthen the investment,valuation and settlement functions of domestic currency.It directly promotes the internationalization of domestic currency.In addition,OFDI can indirectly promote the internationalization of domestic currencies by promoting international trade,balancing the balance of payments and promoting the development of financial markets.Then,this paper will further test the impact of OFDI on currency internationalization by using cross-border panel data.Based on the availability of data from 18 countries in 1994-2015,we use the share of international bonds as the proxy index to measure the degree of currency internationalization and OFDI as the core explanatory variable.Taking the national economic scale,currency stability(including internal and external stability),trade scale,financial market development,military strength,political stability as a control variable.This paper constructs panel data model for empirical analysis.On the one hand,this paper makes an overall analysis.The empirical results indicate that OFDI promotes currency internationalization.For every 1%increase in OFDI,the level of currency internationalization will increase by 0.889%.The other important control variables,such as national economic scale,trade scale,and financial market development have a positive impact on currency internationalization,which shows that a country's strong economic and trade strength and financial market development will promote the internationalization of its currency.The fluctuation of currency value has a negative impact on currency internationalization,which indicates that the more stable a country's currency,the more conducive to currency internationalization.It meets the theoretical expectations.On the other hand,this paper divides the currency internationalization into three groups:initial,medium and late stages,and examines the role of OFDI in different periods of currency internationalization.The empirical results show that in the medium-term of currency internationalization,the increase of OFDI can promote the development of domestic currency internationalization,but it is not significant in the initial and late stages of currency internationalization.Other control variables have different effects in different periods of currency internationalization.Finally,based on the above analysis,we summarize the conclusions of this study and draw inspiration for the internationalization of RMB.Compared with the existing research,the innovation of this paper lies in the novelty of the topic.At present,the research on the influencing factors of currency internationalization mainly focuses on economic scale,trade strength,currency stability,degree of financial market development and so on.In this paper,OFDI will be included in the influencing factors of currency internationalization,and explore the impact of OFDI on different stages of currency internationalization,which not only enriches the existing theory of currency internationalization,but also has important practical significance for further promoting the development of RMB internationalization.