RMB Internationalization and Its Implications for Financial and Monetary Cooperation in East Asia

This paper emphasizes the importance of the denomination of financial assets rather than trade invoicing as a long-term determinant of an international currency. China needs to liberalize and open its financial system and make the RMB fully convertible, and to adopt a moreflexible exchange rate system to speed up its currency internationalization, for which China could follow either a global or regional approach. The global approach is a riskier and more unpredictable strategy because it would demand a scope and timeframe of financial liberalization that is likely to be beyond China＇s institutional capacity over the coming decade. There are two options that could be taken in following the regional approach. One is creating an ASEAN＋ New 3 （the Chinese Mainland, Hong Kong, and Taiwan） RMB bloc and the other is liberalizing China＇s financial industries and internationalizing the RMB by playing a leading role in East Asia＇s economic integration within the framework of ASEAN＋ 3, This paper concludes that the latter is a more realistic and effective approach for China.

Impact of the RMB Joining in the SDR Basket on Its Internationalization from the Perspective of Risk Spillover

For evaluating the influence of the Chinese renminbi(RMB) joining in the special drawing right(SDR) basket on RMB's internationalization, the authors systemically study the risk spillover networks and examine the dynamic relationship of exchange rates among the SDR currencies including the US dollar(USD), European Union euro(EUR), Japanese yen(JPY) and British pound(GBP).The empirical results demonstrate that the USD takes a dominant position and holds the biggest risk spillover to other currencies, and the RMB's inclusion to the SDR basket makes the risk spillover to get average, giving rise to the SDR currency system more stable to a certain degree. The inclusion of the RMB in the SDR not only can reduce the systematic risk of the SDR, but also has a certain impact on the international exchange rate markets. Nowadays, in front of the growing trade friction, more such researches could help to effectively deal with the currency disputes.

Influence of RMB Cross-border Settlement on the Chinese Economy

In 2014, the amount of RMB cross-border settlement had reached RMB7.6tn. It is important to evaluate the potential influence of RMB internationalization on China＇s macroeconomy. In the present study, a framework that includes monetary supply and demand was created to analyze the influences of RMB cross-border settlement on China＇s domestic interest rate, asset price and foreign exchange reserves. It is found that RMB settlement in different BOP items leads to very different effects on China＇s real economy and the financial market. Based on the analysis, we provide a framework of the policy priorities for RMB internationalization, with the RMB cross-border settlement items divided into three groups with different priorities. Meanwhile, to support RMB internationalization, exchange rate reforms should be adopted as a priority and a prudent attitude maintained regarding capital account liberalization.

Are Offshore RMB Arrangements the Basis for a Long-term Exchange Rate System without Convertibility?

This paper discusses China＇s relatively new structure of dual onshore and offshore RMB markets. Its distinguishingJeature is both offshore trading at exchange rates that are market determined and onshore trading at exchange rates anchored at the official spot rate with capital account inconvertibility. We note that thus far the CNH and CNY spot rates have largely tracked each other, suggesting that the shadow priee on the convertibility constraint onshore and also the offshore diversification benefit is close to zero. However, this could change in the future. We discuss the potentialJbr the offshore RMB market to grow with trade settlement and bilateral ,swap arrangements in RMB, which would provide a big enough pool ofliquidityforthe RMB to become a vehicle currency and reserve c^rrency. These potential developments will be restrained by onshore inconvertibility, but moving to convertibility seemingly implies major change in China ＂s financial structure and the offshore RMB arrangements are only a small first step along this path. Crucial in this evolution of arrangements will be fi^ture Chinese growth performance and the relative attractiveness of onshore inconvertible but offshore marketable RA4B relative to the debt laden and slow growth currencies of the USA, the EU and Japan.

International Financial Adjustment for China:A Financial Valuation Approach

International financial adjustment is the process whereby valuation shifts from asset price and currency changes result in relatively durable net wealth transfers across countries＇ international balance sheets. Thispaper applies a financial valuation approach to estimate the direction and the broad extent of recent international financial adjustments on China international balance sheet. We estimate China＇s international balance sheet losses resulting from the valuation shifts over the period 2005 2010 and reveal that international currency shifts over the past decade have also generated a range of non-balance sheet financial and monetary adjustment pressures for China. This paper also evaluates how China＇s evolving international financial policy arrangements could better mitigate China＇s exposure to international financial adjustments. These arrangements include a more effective currency mechanism and the mechanisms to internationalize the RMB to buffer international financial valuation shocks

The Renminbi as a Trading Currency:Evidence from Selected Countries Participating in the Belt and Road Initiative

This paper investigates the effects of the renminbi(RMB)exchange rate on trade prices and volumes in selected Belt and Road Initiative(BRI)countries in comparison with the effects of the US dollar.The stylized facts show that the RMB is underused in bilateral trade with selected BRI countries where intermediate goods dominate.By estimating the level of exchange rate pass-through and trade volume elasticity,we find that the RMB is significantly correlated with the volume of imports in the sample countries,predicted by the producer currency pricing(PCP)paradigm.We also regroup intermediate and final goods between China and the BRI countries.The evidence shows that dollar fluctuation affects export volumes,reflecting the role of the US as a final goods destination,whereas the RMB exerts a significant impact on the volume of intermediate goods imported from China to the sample countries due to China s important position in global value chains.

The Role of Institutions:A Cross-country Analysis of Renminbi Trading in Foreign Exchange Markets

We explore how China's geographically targeted policies impact RMB overseas use individually or in combination.The policies include swap agreements,clearing banks,investment quotas,and direct trading between Chinese renminbi(RMB)and non-USD currencies.Adopting a fuzzy-set qualitative comparative analysis and using Bank of International Settlements cross-country data on foreign exchange markets,we find that institution building has lowered the barriers to international adoption of the RMB.Specifically,for countries economically close to China,high RMB trading is explained by either(i)having a clearing bank in the host market and direct quotations between the RMB and the local currency,or(ii)being a financial center and having access to the Chinese capital market.This combination of policies is explained by the creation of(i)"trading posts"that provide RMB liquidity abroad,and(ii)channels that allow actors to " recycle" offshore RMB funds.We triangulate our results with interviews conducted with senior People’s Bank of China officials.

Development targets and tasks of China’s financial industry in the“13th Five-Year”period

As for financial development based on the dual attributes of function and industry,China,in the“13th Five-Year”period,should build a more mature and better-established modern financial system and transform from a major financial country to a major world financial power.The proportion of financial industrial value-added should be maintained at around 7.5%during the“13th Five-Year”period,and by the end of the period,the proportion of direct financing in social financing should surpass 25%.The main tasks of financial development include improving the interest rate and exchange rate mechanisms,and promoting the market to play a decisive role in the allocation of resources,holding onto the bottom line of preventing systematic and regional risks,and making full use of government function,enhancing financial reform,and opening-up in a concerted effort for the purpose of building a global financial powerhouse,and putting more efforts into developing diverse financial patterns to better serve the development of the real economy.To this end,China should promote coordination among different economic policies,continue to advance the reform of financial institutions,push forward the development of multi-level capital markets,strengthen the financial security network,and prepare emergency plans to prevent potential financial crises.