Financial Opening Constraints And Breakthroughs Of RMB Internationalization

In recent years,with the changes in the international economic situation,the pattern of the US dollar as a single strong international system is also gradually changing.At the same time,China’s ties with the global economic system have deepened,and the international influence of the RMB has been increasing.The construction of the "One Belt,One Road" project has further expanded the demand for RMB investment and financing as well as cross-border circulation.The opening of China’s financial sector to the outside world is also expanding,and the opening of the capital account is increasing along with the convertibility of RMB,and the offshore RMB market is developing rapidly.In particular,the mechanism and management of the impact of financial liberalization on the development of RMB internationalization should be studied to ensure the healthy development of RMB internationalization in the process of financial liberalization.Therefore,the important work items of this paper include: i.summarize and sort out the existing results in related fields.ii.Theoretical analysis of financial opening,currency internationalization and the interaction mechanism between them.iii.Review the development history of RMB internationalization and financial opening in China is examined.iv.The level of RMB internationalization is measured in terms of the actual use of both payment and settlement and as an investment currency,and the level of financial market opening in China is measured in terms of nominal measures,while the domestic foreign exchange differential is taken as a proxy variable for the degree of capital account opening,the foreign exchange market pressure is taken as the foreign exchange market risk in the process of RMB internationalization,and the Sino-US interest rate differential is taken as the interest rate factor in China’s financial market.The dynamic influence relationship between them and RMB internationalization and financial market opening each other is discussed through a five-factor TVP-VAR model.This paper shows that in the context of financial openness,further expansion of financial market opening has a certain negative impact on the development of RMB internationalization in the short term,but in the long term,the healthy development of RMB internationalization needs to rely on the improvement of financial openness.Currently,the offshore RMB market is also closely related to the development of RMB internationalization.On the one hand,the domestic foreign exchange difference between the onshore and offshore RMB markets is closely related to the degree of China’s capital account opening;on the other hand,the change of the domestic foreign exchange difference affects the appreciation expectation of RMB,thus playing a crucial role in the stable development of RMB internationalization.On this basis,the global interest rate market and foreign exchange market risks are closely related to the development of RMB internationalization,especially before 2015,the widening of the Sino-US interest rate differential and the greater appreciation expectations of RMB in the global financial market in general,thus attracting the attention of many international capitals,which also led to the further expansion of the overseas market demand for RMB and promoted the level of RMB internationalization in the short term The increase in the level of RMB internationalization in the short term.Coupled with the impact of capital account controls,foreign exchange market pressure interacts with the development of the RMB’s internationalization,and this impact will eventually be reflected in the development of the RMB’s internationalization.Therefore,the exchange rate reform of the RMB is also significant in the long run,since the "811" exchange rate reform in 2015,the previous exchange rate formation mechanism,which was pegged to the US dollar,has been reformed,and the spread between the US and China has narrowed,effectively promoting the long-term development of China’s monetary policy and creating a better development environment for the internationalization of the RMB.Based on the above theoretical and empirical analysis,this paper puts forward several policy recommendations as follows: First,steadily promote financial opening.As an important part of the country’s financial opening,the capital account opening should pay attention to the supervision and management of domestic and foreign capital flows in the process of steadily promoting the reform;second,focus on the healthy development of the offshore RMB market.The offshore RMB market has become an important window for the development of RMB internationalization,but for different historical development periods of RMB internationalization,its actual impact on the development of RMB internationalization should be fully considered;third,gradually improve the market-based exchange rate formation mechanism.Strengthen the transparency of the policy and effectively guide market expectations;fourth,improve the macro-prudential management toolbox,especially in the face of the appearance of a stable macro-economy,the role of macroprudential policy tools is expected to be effectively controlled in the face of hidden financial risks of structural imbalances.