RMB Internationalization Report Monetary Strat

·Economic and Business Report·RMB Internationalization Report 2015

Monetary Strategy in “One Belt, One Road”

InitiativePress Released in November 2015 by International Monetary Institute, Renmin

*University of ChinaIntroductionTill 2014, if we count from 2009 when China started pilot cross-border RMB

trade settlement service, the practice of internationalization of RMB has already

been carried out for five years. Taking the experience of internationalizationof

the sovereign credit currency into consideration, five years is quite short

compared with the span of the rise of the main international currencies.

Especially in the first period, it is easy for newly-developing international

currencies to emerge, but is is almost impossible to progress stably and quickly.

However, RMB is rewriting the ing to the calculation of research team from Renmin University of

China (RUC), RMB internationalization index (RII) has reached 2.47% at the

end of 2014. At the end of 2009, it was only 0.02%, which means it has increased

more than 120 times in five years. Besides, the share of international use of

the four main international currencies, including dollar, euro, yen and pound,

decreased obviously when compared to last year. Meanwhile, the share of RMB,

Canadian dollar, Australia dollar and many other newly-developing international

currencies increased. At the end of 2014, the yen internationalization index had

decreased to 3.82%. As long as there are no major adverse events, the degree of

internationalization of RMB will surpass that of yen in the coming one to two

*This is an excerpt from RMB Internationalization Report 2015, prepared for the New York Launch Meeting of RMB

Internationalization Report 2015. International Monetary Institute, Renmin University of China, Beijing, China.

RMB Internationalization Report 2015 Monetary Strategy in “One Belt, One Road” Initiative

121years. Then RMB will be one of the major international 2014, the degree of internationalization of RMB kept on growing at a

relatively high speed. Trade and finance were main motives. The acceptability

of RMB increased in many countries. With the progress of regional trade

cooperation, the policy of cross-border RMB trade settlement gradually settles

down. In 2014 the amount of cross-border RMB trade settlement reached 6.55

billion, or 41.6% of year-on-year growth. The share of cross-border RMB trade

settlement increased to 2.96%. Meanwhile, finance trade gradually became the

main motive of the increase of the international share of RMB. In 2014, the

direct investment reached 1.05 billion, year-on-year growth is 96.5%; the market

of the international RMB bond is becoming more and more prosper. Offshore

RMB financial markets throughout Europe and Asia have achieved great

progress. The share of RMB reached 2.8% in global capital and finance trade. At

present, RMB is the second widest used currency in international trade financing,

the fifth widest used means of payment and the seventh widest used currency

in foreign exchange transactions. RMB has also received much recognition

officially. People's Bank of China has signed currency swap agreements with

28 monetary authorities in different countries and regions. The total amount is

over 4.07billion yuan. RMB has already been accepted as reserve currency or

intervening currency by some central ering this, in 2015 it is of great possibility that RMB will be taken into

currency basket of SDR. If RMB is added to SDR currency basket, it means IMF

will recognize RMB as an international reserve currency officially. It is also the

critical symbol of RMB entering the main international currencies. If executive

board refuses RMB again with the criterion of “free use of money”, it can’t hold

back or slow down the progress of internationalization of RMB. Because on the

basis of existing achievement. “One Belt, One Road” which is actively promoted

by China will provide more and better chances for the internationalization of

RMB. Then the progress of internationalization of RMB will be quick and

ng the spirit of ancient Silk Road, which is “peaceful cooperation,

open and inclusive, learning and benefit from each other, and win-win results”.

In 2013, China proposed “One Belt,One Road” strategy. This is a new regional

cooperation pattern. The goal is to make the most of the largest economic

corridor in the world. “One Belt, One Road” and internationalization of

RMB are the two important strategies promoted by China in the 21 century

as an emerging country. These two strategies serve China's national interests,

providing indispensable support for emerging countries. Meanwhile, they serve

the global interest. They are further improvements for the world economic order

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Press Released in November 2015 by International Monetary Institute, Renmin University of Chinaand the international monetary system, which shows the responsibility of an

emerging theme of the report on internationalization of the renminbi of 2015

is: monetization strategy in the execution of “One Belt, One Road” strategy.

Our research team mainly completed the following tasks. First, we clearly put

forward the target, which shows the good will and history bear of China. Second,

we studied the logic of the two strategies interact with each other from theory

exploration, historical experience and empirical test. Finally, we emphasized

that commodity pricing and account settlement, infrastructure finance, industry

development zone construction, cross-border e-commerce should serve as the

breakthrough of promoting the standards of the internationalization of RMB by

the construction of “One Belt, One Road”, and make in-depth discussion related

to necessity and feasibility.

The defection in supply and structure disequilibrium of global public goods,

especially the extreme defection of public goods in developing countries,

seriously hinders the development of global economy and finance. In the

circumstance of developed countries like the US decreased the supply of global

public goods, as the world's second largest economy, the biggest trading nation

and an important direct investment country, China has the ability of providing

global public goods. Besides, being the biggest developing country, China can

have the ability of satisfying the supply of global goods for developing countries.

“One Belt, One Road” will set up the most charming win-win cooperation and

the common of destiny in the world. Taking this chance; China can increase

the global public goods in five facets: creating new notion and new mode of

international cooperation; realizing efficient device interoperability, providing

new international currency; founding new international financial organization;

providing new methods of eliminating local wars and ies along “One Belt, One Road” use more RMB, which also means

China increasing the supply of global public goods. RMB receives more and

more recognition in international trades. This helps to decrease the cost of

trading with China, make trade settlement convenient and avoid the risk of using

a third party currency in bilateral trade. China has its own special advantage in

infrastructure construction. By setting up new multilateral financial institutions

and providing financial support for major projects with the method of RMB

bonds, loans and direct investment, the material basis of “One Belt, One Road”

can be tamped. In fact, RMB fulfill the function of trade pricing and account

settlement, financial transactions and foreign currency reserves, which means

China provides new international currency and risk management mechanism for

countries along “One Belt, One Road”. By doing this, China is able to build safe

RMB Internationalization Report 2015 Monetary Strategy in “One Belt, One Road” Initiative

123anchor for economy and finance, and make great contribution for the stability of

regional economic and financial stability.“One Belt, One Road” has five goals, which are policy coordination,

communication facilities, free trade, unimpeded financing, unity of peoples.

Ultimately, it is to strengthen the economy cooperation of China and countries

along“One Belt, One Road”and gradually forms the big structure of regional

deepen cooperation. Countries along “One Belt, One Road”have different

kinds of resources, so the economic complementarity is strong. The potential

and space of cooperation is huge. China is promoting the progress of the

internationalization of RMB and strengthening the circulation of currency of the

countries. We are exerting positive effects on achieving the goals and deepen

the regional economy cooperation. The results of theory and empirical studies

show that increasing the share of the most frequently used currency within the

region can be helpful to manage regional financial risks, reduce transaction

costs, improve the integral competitiveness within the region, and facilitate the

progress of trade and economic integration in the region. China is an important

trade partner of countries along “One Belt, One Road”. The development of

economy and finance of China is in the leading position within this region. The

stable politics and proper culture make good preparation for the expansion of

RMB in “One Belt, One Road”. As long as we keep on increasing the facility

and lowering the cost, with the progress of the construction of “One Belt, One

Road”, countries alongside will gradually increase the share of RMB in trade,

investment and financing, financial transactions, and foreign exchange ing to this report, “One Belt, One Road” not only bring benefits

to people in alongside countries, but also provide chances for the

internationalization of RMB. These two national development strategies, which

are “One Belt, One Road” and internationalize of RMB, can complement each

other. But in practice, we should take the following issues into consideration:Firstly, monetization strategy of the construction of “One Belt, One Road”

should seek breakthrough in the following four aspects. First, China should

take active measures to promote the use of RMB as the pricing and settlement

currency in commodity trades. This can be done by taking advantages of China’s

large market share in this region and China’s advanced financial institutions

and futures market. We should give priority to the import of iron ore, aluminum

ore and coal. Second, China needs to take use of China’s experiences of

infrastructure construction and capital mobilization, and make RMB be the major

currency in infrastructure financing, especially in international government aids,

policy loans and so on. Third, by taking advantage of China’s experiences, China

can seek to promote the use of RMB in construction and operation of industrial

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Press Released in November 2015 by International Monetary Institute, Renmin University of Chinaparks in the region, which will also promote the reasonable layout of RMB off-shore financial markets and form the transaction network of global RMB. Forth,

China should promote the use of RMB in e-commerce transactions by taking

advantage of geographical and cultural ly, we need to hold on to the notion of open and inclusive to mobilize

global resources and bring benefits to countries alongside. The fact that AIIB

is widely accepted reminds us that it is important to find the greatest common

divisor for values which we can share. Then the goal of win-win can be

achieved. Therefore, China should welcome countries alongside to actively

participate in the construction of “One Belt, One Road” and the accompanying

monetary arrangements. Particularly, we need to learn the experience and

wisdom of economic construction, risk management, regional cooperation and

multilateral management in developed y, these two strategies need the support of the development of domestic

economy. Foreign investment and loans not only need to put emphasis on the

efficiency and safety of capital, but also to learn from the lessons of western

countries. To stand out from fierce competition, a country need to forbid blind

drain of capital or the update of domestic industry will face great difficulty.

Considering this, whether these two strategies can be successful comes down

to China’s domestic economic transition, technical progress and institutional

innovation.2 RMB Internationalization Index2.1RMB Internationalization Index and Comparison of Major

CurrenciesBased on the currency’s theoretical functions, as a unit of account, as a medium

of exchange, and as a store of value, the calculation of RMB Internationalization

Index (RII) takes account of the weight of RMB in trade valuation, financial

valuation, and official foreign exchange reserves. RII is ranged between 0-100.

If RMB were to be the world’s only international currency, the value of the

indicators of the RII system would be 100%, and RII would be 100; otherwise,

RII is 0. If the value of the RMB internationalization index becomes greater,

then the RMB plays an increasingly important role in the international economy,

and its level of internationalization is increasingly high. RII has been on the rise

in 2014 and RII of the fourth quarter is 2.47 with a growth of 45.4%, more than

120 times growth in five years (Figure 1).