Becoming an International Currency

China plans to allow cross-border yuan direct investments to expand the currency’s global presence Foreign investors will soon be able to make direct investments in China with the yuan obtained legally overseas. The Ministry of Commerce (MOFCOM) recently issued a draft circular on this issue,

Chinese Currency Goes International

Given these trade trends, ever-closer diplomatic and financial links with China and a drive by chinese poicy banks to increase use of the yuan in Africa, we believe that yuan trade settlement will likely increase significantly from current levels.

Volatility of the Exchange Rate after Renminbi Inclusion into the SDR：Test of Stability and Representation

The special drawing rights(SDR) must have stability and representation in order to serve as reserve assets and the unit of account for bulk commodities and assume the function as a potential international currency. By introducing such factors as China's share in global trade volume in 2013, this paper found that the covariance between the SDR and the price fluctuations of major commodities is the smallest after Renminbi inclusion into the SDR. The covariance is more or less halved compared with the SDR without Renminbi. Then, based on our comparison of volatility in the effective exchange rates(EER) of various countries(extensively used) and the volatility in the SDR exchange rate(seldom used), we found that despite similar trend curves, the SDR's volatility can explain for a very small part of the volatility in effective exchange rate. The residual error indicates that the share of SDR is limited in the volatility of effective exchange rates of various countries on the one hand and suggests that it is urgent to expand the SDR to include representative currencies, particularly the currencies that represent significant weights of world trade. Relevant tests demonstrate that Renminbi inclusion into the SDR will not only enlarge the stability of SDR but enlarge its function as an index currency through the extension of SDR's function as the unit of account for major world commodities and the inclusion of the currencies of other major trading nations, so that the representation as the global unit of account will be enlarged. In addition, the inclusion into the SDR also helps Renminbi become a component of the international reserve currencies and supplement its liquidity supply.

Renminbi Internationalization in the New Normal： Progress, Determinants and Policy Discussions

In the present paper we explore the internationalization of the renminbi with reference to the experiences of other monetary powers, and discuss its determinants, prospects and implications for China＇s development in the ＂new normal. ＂ Specifically, after summarizing the major progress made thus far, we conduct a regression analysis, showing that economic size and financial conditions are significant determinants of the international currency status, while inertia and other unobserved factors also play important roles. These empirical findings enable us to undertake a scenario analysis focusing on the renminbi＇s potential to become a global reserve currency. Based on this quantitative research, we then revisit China＇s policy initiatives designed to promote its currency overseas. In our view, the internationalization of the renminbi, along with financial deepening and liberalization, should be regarded as a means to achieve China ＇s goal of reaching a more sustainable and balanced model of development.

Renminbi in Ordinary Economies： A Demand-side Study of Currency Globalization

Most studies of renminbi internationalization focus on the supply side, by examining China＇s own economic and political conditions. In contrast, this study addresses the demand side of renminbi internationah＇zation, by providing an in-depth analysis of renminbi use in ordinary foreign economies from both economic and political perspectives, with a particular focus on South Korea, China＇s next-door neighbor. The study finds that sustainable indigenous market forces facilitating renminbi use in South Korea remain weak, despite the country＇s close economic ties with China. This research also shows, however, that the Korean Government has itself recently been able, through its policy measures, to generate new domestic support for greater use of the renminbi. These findings ultimately highlight the significant impact on the internationalization of a currency of the politics in the foreign countries using it.