The Impact Of Economic Policy Uncertainty On The Cross-Border Trade Settlement In RMB

Since the pilot project began in 2009,China’s cross-border trade RMB settlement business has been developed for more than ten years,making great progress,and promoting the rapid development of RMB internationalization.However,there are many restrictions on cross-border settlement of the renminbi compared to the US dollar as the world’s currency.In the context of frequent black swan events in the financial market,economic policy uncertainty has triggered changes in the capital market,and the stock market,bond market and foreign exchange market have fluctuated in turn,in this context,cross-border trade RMB settlement will also be affected by the uncertainty of China’s economic policy.At present,domestic and foreign scholars have studied the influencing factors of cross-border trade settlement currency choice.However,little has been examined about the impact of economic policy uncertainty on RMB settlement of cross-border trade.Considering that economic policy uncertainty will trigger frequent changes in investment and financing decisions of multinational enterprises and financial institutions such as banks,as well as fluctuations in the RMB exchange rate,it will affect the scale of RMB settlement of cross-border trade.This study examines the impact of economic policy uncertainty on RMB settlement of cross-border trade in China from an empirical perspective and verifies the regulatory role of financial development in the impact of economic policy uncertainty on RMB settlement of cross-border trade.Based on the panel data of 31 provinces in China from 2009 to 2021,this paper constructs a benchmark model to explore the direct effect of economic policy uncertainty on RMB settlement of cross-border trade,and at the same time examines its specific impact mechanism and the regulatory role of financial development through the intermediary effect test.The study found that:(1)the rise of Chinese economic policy uncertainty will inhibit the scale of RMB settlement of cross-border trade,and this conclusion passes the soundness test of this paper;(2)The results of the intermediary effect test show that there is an intermediary effect on the impact of China’s economic policy uncertainty on the RMB settlement of cross-border trade.Its impact path includes: the rise of China’s economic policy uncertainty by curbing the inflow of foreign direct investment on the scale of RMB settlement of cross-border trade;Rising Chinese economic policy uncertainty has an impact on the scale of RMB settlement for cross-border trade by contributing to the depreciation of the RMB;Rising Chinese economic policy uncertainty has had an impact on the scale of RMB settlement of cross-border trade by dampening the expansion of China’s trade scale.(3)From the perspective of regional heterogeneity,the rising economic policy uncertainty in the central and western regions will inhibit cross-border trade RMB settlement inhibition effect is more obvious.The key provinces of the "Belt and Road" overlap more with the provinces located in the central and western regions,which fully demonstrates the important role of the "Belt and Road" policy in promoting the settlement of cross-border trade in RMB.(4)The results of the adjustment effect show that higher financial development efficiency and large scale of financial development will alleviate the negative impact of economic policy uncertainty on the scale of RMB settlement of cross-border trade,indicating that China should further reform the financial system and continuously improve the financial system to enhance the level of domestic financial development.