Research On The Impact Of RMB FDI On RMB Internationalization

The RMB officially joined the SDR currency basket on October 1,2016,taking an important step in the process of the internationalization of RMB.With the gradual advancement of the internationalization of RMB,the stock of overseas RMB has increased.Therefore,establishing a smooth overseas RMB return channel and improving the international circulation mechanism of RMB will become the key to the continued development of RMB internationalization.The People’s Bank of China issued documents related to cross-border RMB business in June 2011.This is a rule for overseas RMB returning to the Mainland and the foreign direct investment RMB settlement business(referred as the foreign direct investment in RMB)officially launched.The annual average scale of the foreign direct investment in RMB is more than one trillion yuan since 2015,which has become an important way for overseas RMB to return.When China’s capital account is not fully opened,the foreign direct investment in RMB is an important step in the development of capital account convertibility now.It realizes the return of RMB under capital account,broadening the return channel of overseas RMB,and becoming the key construction aspect of overseas RMB return mechanism.Based on the perspective of international currency circulation,whether the foreign direct investment in RMB as a large-scale cross-border investment activity can promote the internationalization of the RMB is worth studying.We use the method of theoretical analysis combination with empirical tests to study the impact of the foreign direct investment in RMB on the internationalization of the RMB,with the RMB Global Index as a measure of RMB internationalization.Firstly,we introduce control variables from the aspects of the economic development level,the financial market development degree,currency stability and exchange rate level,and study the long-term relationship between the foreign direct investment in RMB and RMB internationalization through linear regression.Secondly,we will further study the dynamic impact of the foreign direct investment in RMB on RMB internationalization from the perspective of exchange rate by establishing a VAR model.Conclusions are as follows:(1)In the long run,the relations among the level of economic development,the degree of development of the financial market,the exchange rate level,and the foreign direct investment in RMB with the internationalization of RMB are significantly positively correlated.The role of the foreign direct investment in RMB in promoting the internationalization of the RMB is obvious.(2)There is a mutual promotion between the foreign direct investment in RMB and RMB internationalization in the long run.Not only the foreign direct investment in RMB can promote the internationalization of the RMB,but the increase in the degree of internationalization of RMB is also conducive to the development of the foreign direct investment in RMB business.(3)From the exchange rate perspective,the increase in the scale of the foreign direct investment in RMB has an impact of the appreciation of the RMB exchange rate,and the rise of the RMB exchange rate has a positive impact on the internationalization of RMB.The increase in the size of the foreign direct investment in RMB will reduce the volatility of the RMB exchange rate.The volatility of the RMB exchange rate reduces the uncertainty of the return on RMB assets,which will be a positive impact on the promotion of RMB internationalization.So,we propose the following policy recommendations:to standardize of business process of the foreign direct investment in RMB and smooth the channel of the foreign direct investment in RMB;to improve the risk prevention system for the foreign direct investment in RMB;to promote the construction of RMB ofshore market;to promote the reform of the exchange rate formation mechanism steadily and open up capital projects gradually;to promote the internationalization of China’s financial institutions and improve internationalization level of Chinese enterprises.