To promote the internationalization of the renminbi, efforts can be made both internally and externally. First, at the economic and financial level, we will continue to enhance China's economic and financial strength and lay a solid foundation for the internationalization of the RMB. The second is to build a regional pillar for the internationalization of the renminbi at the diplomatic and strategic levels.
Stone light. After the international financial crisis in 2008, China seized the favorable opportunity to launch a cross-border RMB settlement pilot, and the internationalization of RMB began to take off. Before the reform of the RMB exchange rate system in 2015, the internationalization of the RMB developed rapidly. From the exchange rate reform of August 11 in 2015 to 2017, the trend of RMB internationalization has been adjusted due to internal and external factors. After the outbreak of the new crown epidemic, China took the lead in controlling the epidemic and achieving positive economic growth, and the favorable conditions for the internationalization of the RMB have further increased. However, at the same time, the international economic and trade environment has undergone profound and complex changes in recent years, and the trend of de-globalization has not only added difficulties and variables to the internationalization of the RMB, but also strengthened the urgency of the internationalization of the RMB.
Promoting the internationalization of the renminbi has multiple significance.
To build a new development pattern, it is necessary to promote the internationalization of the RMBThe internationalization of the renminbi can facilitate China's global allocation of resources. From the perspective of payment and settlement functions, the increase in the international use of RMB can reduce the exchange cost and exchange rate risk of international enterprises. From the perspective of investment and financing functions, the international use of RMB can facilitate the allocation of production and financial assets by China's capital abroad, which is conducive to China's construction of an independent industrial chain and chain at a lower cost, and reduces the exchange rate risk when China makes international investment. From the perspective of the pricing function, the expansion of the scope of RMB pricing is conducive to enhancing the international pricing power of China's bulk commodities and occupying a more favorable negotiating position in the international market. The enhancement of the RMB reserve function is of strategic significance, which can increase the space of China's monetary policy on the basis of reducing China's foreign exchange reserves.
The internationalization of the renminbi can expand the resources of China's macroeconomic regulation and control. Currency internationalization can improve the ability to incur debt and expand fiscal policy space. The safety of financial assets of major international currency issuers is relatively high, and their treasury bonds are regarded as major safety assets, which are an important target of global foreign exchange reserves and private asset allocation, and can be financed at a lower cost. It is for the above reasons that the debt sustainability of ** has increased. The status of the US dollar as an international currency is an important reason for maintaining a large external debt. The low cost of financing in the United States, the high return on investment, and the positive return on net assets help maintain a high debt pattern. With the improvement of the international status of currencies, international currency issuers have been able to implement more intensive easing policies through unconventional monetary policies, which has also expanded the space for their monetary policies.
The internationalization of the renminbi can enhance China's ability to cope with economic and financial crises. Major international currency issuers can issue local currency-denominated bonds to the world, and the scope and channels of financing have been greatly expanded, and there is no need to raise foreign currency to repay debts, and there is no risk of exchange rate fluctuations, thus expanding the means of coping with economic and financial crises. In response to the impact of the pandemic, the U.S. debt ratio (debt GDP) rose from 102 at the end of 20199% jumped to 132% at the end of 2020, creating the fastest and largest growth rate in history. In 2020, the Federal Reserve and the European Central Bank implemented quantitative easing policies, and the scale of asset purchases exceeded 6% of GDP, while the scale of asset purchases in emerging economies that do not have international currency status was mostly 1%-2%. For the dominant international currency, the role of safe assets is more prominent in times of great turbulence in the international financial market. Whether it was the international financial crisis in 2008 or the new crown epidemic, even though the United States was at the epicenter of the financial crisis, the market still sold other assets and held more dollar assets, and the dollar exchange rate rose instead of falling.
Key features of this study:
First, we should pay attention to the depth of history and strengthen our understanding of the laws governing the evolution of the international monetary system. Currency internationalization will lead to the adjustment of the interests of major economies, which is an important part of the great power game. This study analyzes the history of major international currencies and the role they have played in them. For example, the replacement of the US dollar by the British pound as the dominant international currency is a major change in the international financial system. The U.S. economy surpassed Britain's in the late 19th century, and the U.S. dollar's international status only increased significantly in 1920, and in 1944 it established itself as the dominant international currency through the Bretton Woods system. During this period, there was a lag of 30-50 years, not only as a result of market evolution, but also as a result of U.S. policy choices. The United States** did not take the initiative to promote the internationalization of the dollar in the early days, and the United States adopted isolationism and distanced itself from European affairs since the Washington period. In the mid-to-late 19th century, U.S. exports increased and the isolationist tradition was gradually abandoned. In 1912, Taft proposed "gold dollar diplomacy" to strengthen cooperation with Latin America. In 1920, under the international gold standard dominated by the British pound, the dollar zone covering Latin America began to take shape. The U.S. dollar was regionalized before it became the dominant international currency. In addition, before 1913, the United States did not have a central bank, let alone a clear currency internationalization strategy, and the internationalization of the dollar lacked a main body to promote it. After the establishment of the Federal Reserve in 1913, it actively developed dollar-denominated bills, which effectively promoted the early internationalization of the dollar.
The second is to highlight the macro perspective, focusing on the impact of RMB internationalization on economic and financial management. After the internationalization of the renminbi, the complexity of macroeconomic management will increase. The internationalization of currencies generally leads to the formation of a large offshore currency market. The offshore market is difficult to regulate, and it will lead to the operation of the onshore market. Currency internationalization may squeeze the space for macroeconomic regulation and control policy autonomy. Currency internationalization requires a more open capital account and a more market-oriented interest rate determination mechanism, which will make domestic policies have to converge with international policies. Since the international financial crisis, the United States, Europe and Japan have implemented zero or negative interest rates, which is not only the need for domestic macroeconomic regulation and control, but also a passive choice to a large extent under the high degree of financial openness. Because after the implementation of zero interest rates in other major economies, it is difficult for their countries to maintain high interest rates, and the synchronization of domestic policies with international policies has increased. The macroeconomic policy adjustment of the dominant country of the international monetary system will have spillover and spillover effects on the global economy, and the factors that need to be considered in policymaking are more complex.
The third is to pay attention to the analysis of the micro mechanism, and carry out special research on the mechanism of international monetary circulation. The currency circulation mechanism is an important basis for the international use of the renminbi. The steady output of money is a realistic starting point for the activation of international circulation. To promote the internationalization of the RMB, it is necessary to build a market-oriented output mechanism of the RMB, make use of the international competitiveness of China's exports, and gradually form a currency circulation of "current account inflow and capital account outflow", increase the surplus to achieve capital accumulation, and then export the local currency through foreign financial investment. At the same time, it is necessary to strengthen the construction of the offshore RMB market and strengthen the coordination between domestic and foreign regulatory authorities. Expand the scale of the offshore market and improve the offshore RMB liquidity adjustment mechanism. Diversify the varieties and channels for overseas investment in RMB assets, and smooth the mechanism for RMB repatriation.
Key takeaways. To promote the internationalization of the renminbi, efforts can be made both internally and externally. First, at the economic and financial level, we will continue to enhance China's economic and financial strength and lay a solid foundation for the internationalization of the RMB. Consolidate and increase the proportion of China's economy in the world, enhance the degree of independence and controllability of the industrial chain, steadily promote financial reform and opening-up, and enhance the regional and global influence of the RMB. The second is to build a regional pillar for the internationalization of the renminbi at the diplomatic and strategic levels. Focusing on countries along the Belt and Road, we will strengthen economic, trade and diplomatic cooperation, encourage RMB-denominated settlements, increase RMB external loans, and support relevant countries to increase their holdings of RMB assets in their foreign exchange reserves. Seize the opportunity of the United States' abuse of financial sanctions to improve the international acceptance of the renminbi.
We will continue to promote the internationalization of the renminbi and actively create a favorable policy environment. The internationalization of the renminbi is a long-term dynamic process, which may experience twists and turns, and needs to be promoted for a long time. From the perspective of future goals, the internationalization of the RMB can be compared with the Japanese yen and the British pound in the near and medium term. At present, the proportion of the renminbi in international foreign exchange reserves and denominated settlements is about 1% to 2%, and the yen and the pound sterling are about 5%. China's economic volume far exceeds that of Japan and the United Kingdom, and the gap in currency status mainly comes from the difference in the financial system and openness. In the medium and long term, it can promote the RMB to reach the level of euro internationalization. At present, the euro accounts for about 20% of international foreign exchange reserves and denominated settlements. The size of China's economy is slightly higher than that of the euro area, but the scale of the economy is still smaller than that of the euro area.
In the longer term, it can promote the renminbi to become one of the major international currencies, and strive to play a leading role in East Asia, Southeast Asia, countries along the "Belt and Road" and other regions. Currency has strong political attributes, even if China's economy exceeds that of the United States, but in terms of culture, tradition, location, etc., the currency of the United States and Europe still has room for influence. In the long run, the international monetary pattern may be the coexistence of the three major regions of the renminbi, Western Europe and the United States, with the renminbi, the euro and the US dollar playing a leading role in their respective regions and jointly becoming an important support for the global monetary system.
The author is the director and researcher of the Comprehensive Research Office of the Institute of Finance, Development Research Center