2018-人民币国际化（英文版）-1mb

RMB Internationalization: Implications for U.S. Economic Hegemony

Core Content

This report analyzes the internationalization of the Chinese renminbi (RMB) and its implications for U.S. economic dominance. It explores the motivations behind China's push for RMB internationalization, the factors that determine a currency's global status, the timeline of RMB's internationalization, and the new global institutions China has created to support this effort. The report also assesses the progress made so far and outlines recommendations for the U.S. to maintain its position in the global financial system.

Main Points

Why Internationalize?

• Influence and Prestige: Internationalizing the RMB can enhance China's global standing, especially in international institutions where its formal power lags behind its economic size.
• Security: A global currency reduces reliance on the U.S. dollar, which can be weaponized by the U.S. through sanctions and exclusion from financial systems like SWIFT.
• Domestic Reform: Internationalization is seen as a catalyst for further market-oriented reforms, which are necessary for China to maintain high growth and economic superpower status.
• Opportunity: The 2008 financial crisis weakened confidence in Western economic models, creating an opportunity for China to assert its economic influence globally.

Economic Drivers

• Trade: An international RMB reduces transaction costs and currency risk for Chinese firms, which are major drivers of economic growth.
• Commodities: China, the world's largest importer, benefits from pricing commodities in RMB, which makes them cheaper and more predictable.
• Borrowing: Internationalization allows for RMB-denominated debt and access to offshore markets, enabling China and its firms to borrow more cheaply.
• Financial Development: A global RMB would spur the development of China's financial sector and increase the competitiveness of its banks and corporations.

What Makes a Currency International?

According to Jeffrey Frankel, the key factors for a currency to become international include:

• Domestic Market Size: A large domestic market provides structural demand even in the absence of international demand.
• Network Externalities: The more a currency is used internationally, the more valuable it becomes, creating a self-reinforcing cycle.
• Financial Markets: Open, deep, and well-developed financial markets are essential for internationalization.
• Currency Stability: A stable currency with low inflation is more likely to be adopted globally.

Timeline of Internationalization

• 2002: Qualified institutional investor program launched, allowing foreign institutions to invest in RMB-denominated assets.
• 2005: China ends RMB's peg to the dollar, allowing limited floating.
• 2007: RMB trading band expands to 0.5%, and first offshore RMB bonds (dim sum bonds) issued.
• 2009: PBOC launches a pilot project for international yuan settlements.
• 2010: Chiang Mai Initiative finalized, a $120 billion currency swap arrangement.
• 2011: Domestic companies allowed to invest in foreign countries using RMB.
• 2012: RMB trading band expands to 1%, and Chiang Mai Initiative grows to $240 billion.
• 2013: Shanghai Free Trade Zone launched to experiment with international RMB use.
• 2015: IMF declares RMB no longer undervalued, and PBOC grants foreign institutions access to domestic bond markets.
• 2015: RMB added to the IMF's SDR basket, officially recognized as a global reserve currency.
• 2016: RMB-based oil futures launched, marking a major step in challenging the dollar's dominance in commodities.

New Global Institutions

• Belt and Road Initiative (BRI): A $1 trillion infrastructure project that facilitates the use of RMB in trade and debt financing.
• China International Payment Service Corp (CIPS): A cross-border payment system designed to replace SWIFT, offering faster and more secure RMB transactions.
• Asian Infrastructure Investment Bank (AIIB): A competitor to the Asian Development Bank (ADB), aimed at increasing China's influence in global development finance.

Assessment of Progress

• The RMB has become an official reserve currency and is used in more than 30% of trade payments with Asian partners.
• Despite these gains, the RMB remains a minor player globally, with the dollar accounting for over 40% of international payments.
• The process of internationalization has been slow and faces challenges, including domestic resistance and the need for more open financial markets.

Domestic Stakeholders

• Supporters: Recognize the need for reform to support RMB internationalization and economic growth.
• Opponents: Fear that internationalization could undermine political control and economic stability.

Implications

• A fully internationalized RMB would allow China to reduce dependence on the U.S. dollar system and gain influence over global financial norms.
• It could also enable China to shape international institutions and potentially challenge U.S. dominance in the global economy.

Recommendations

1. Scale back the weaponization of the global financial system: Reduce the use of financial tools as instruments of political pressure.
2. Predictable budgets and deficit reduction: Improve confidence in the U.S. economy and financial system.
3. Make international institutions more inclusive: Ensure that rising powers have a greater voice in shaping global financial norms.

Conclusion

While China has made progress in internationalizing the RMB, it still lags behind the U.S. dollar. The U.S. can maintain its dominance by improving its economic and political model, rather than trying to undermine China through sanctions and exclusion. The report emphasizes the importance of fostering a more inclusive and stable global financial system.