Cheng Siwei: The Key To RMB Internationalization Becomes Reserve Currency

Former vice chairman of the NPC Standing Committee Cheng Siwei On the 15 day, at the seminar on financial internationalization development in Shanghai, China said that the internationalization of RMB is far behind China's international economic status and foreign trade status. Many commodities in China lack international pricing power, which is related to the low level of RMB internationalization. Therefore, RMB internationalization is an important goal of China in the next 10 years.

He believes that the renminbi Internationalization It is a goal, a means and a process. The internationalization of other currencies requires only four steps: circulation, settlement, payment and investment. However, the internationalization of RMB must take one step further. That is, the renminbi must become a reserve currency, one of the marks is the special drawing rights of RMB entering the IMF. In addition, the renminbi will become the reserve currency of some central banks.

Cheng Siwei believed that RMB Internationalization needs to be done to promote exchange rate reform. He pointed out that capital account liberalization and capital account convertibility are not a concept. The former allows you to open, and the latter is not limited to capital flows.

Even if the US and the UK still have restrictions on the flow of foreign capital, it is necessary for China to promote capital account convertibility and capital account liberalization. However, it is not possible to fully open up, and some key links still need to be restricted, because it is impossible for capital to flow freely.

Related links:

Although there is a time correlation, the explanation of the change in the RMB exchange rate is still inconsistent. There is a view that this is a manifestation of global capital returning to the United States. There are also some "conspiracy theories" that may be that overseas capital is shorting China, or that the Chinese monetary authorities are initiatively depreciating to promote exports.

None of these views is verified. However, it is an indisputable fact that whether the appreciation of the past or the depreciation of the present, the RMB is indeed moving forward in the direction of market-oriented pricing. This historical trend is irreversible.

After China's accession to the World Trade Organization in 2001, China began a period of more than 10 years of export boom. During this time, not only China's foreign exchange reserves rose exponentially, but economic growth also showed signs of overheating. According to the theory of international trade and finance, serious trade deficit and high speed economic growth will inevitably lead to the appreciation of the local currency of the economy.

However, due to the incomplete marketization of the RMB exchange rate, the appreciation rate of RMB has not been able to meet the market expectations. Therefore, hot money continues to flow into China, buying renminbi assets, and a large amount of foreign exchange reserves, at the same time, will bring the basic money in the sky, causing the sharp rise in asset prices of domestic real estate and so on, and the inflation situation has been very severe. It can be said that to a certain extent, the imbalance of China's economic structure and various economic difficulties are largely caused by the non marketization of the RMB exchange rate.

Faced with this predicament, China is not unmoved. As early as 2005, China had launched the reform of exchange rate marketization, but the bad luck was on the way to reform in accordance with the established rhythm. In 2008, the international financial crisis broke the reform process. In the next few years, we are almost in the process of repeated economic recession - overheating and recession. Under such conditions, it is undoubtedly very dangerous to accelerate the reform of the RMB exchange rate formation mechanism.