Internationalization of the RMB

本文是《DC/EP — — 人民币国际化的又一次尝试》系列的第四篇。DC/EP可以为人民币国际化问题提供一套系统科学的解决方案。


Definition and significance of the internationalization of the RMB


The meaning of RMB internationalization includes three aspects: first, RMB cash enjoys a certain degree of circulation abroad; Second, financial products denominated in RMB have become investment instruments of major international financial institutions, including the central bank. Third, a certain proportion of international trade should be settled in RMB. The second, and most important, is that the Chinese government is pouring resources into expanding the size of its financial market in RMB.


The tracking objectives of RMB internationalization include five aspects: first, the RMB can be freely exchanged into foreign currencies outside of China; second, the RMB is used as the unit of value in international trade, even if both sides are not related to China; third, the RMB can be used as the payment currency in international trade settlement; fourth, the RMB can be used as the currency of international investment and financing, and fifth, the RMB, as an international reserve currency, not only serves as a tool for governments to intervene in the foreign exchange market but also occupies a certain share in the Special Drawing Rights (SDR).


Major Development Events


In June 2007, the first RMB-denominated bond was landed in Hong Kong, and since then, a number of mainland banks have introduced RMB-denominated bonds with a maturity of two or three years in Hong Kong, with a total amount of over RMB 20 billion yuan.


On 10 July 2008, the State Council approved the People’s Bank of China’s three-step plan to establish a new Exchange Rate Department, whose functions include “developing the offshore RMB market in line with the process of RMB internationalization”.


On December 4, 2008, China and Russia held consultations on accelerating the trade settlement between the two countries in their own currencies; on December 12, 2008, the People’s Bank of China and the Bank of Korea signed a bilateral currency swap agreement to provide each other with short-term liquidity support of RMB 180 billion through the local currency swap.


On December 25, 2008, the State Council decided to carry out pilot RMB settlement for trade between Guangdong and the Yangtze River Delta region and Hong Kong and Macao, and between Guangxi and Yunnan and ASEAN; in addition, China has signed bilateral settlement agreements with eight neighboring countries, including Mongolia, Vietnam, and Myanmar, etc., to choose their own currencies.


On February 8, 2009, China and Malaysia signed a swap agreement with a size of RMB 80 billion/40 billion ringgit.


On March 9, 2009, Guo Qingping, Assistant Governor of the Central Bank, introduced that the State Council has confirmed that the RMB cross-border settlement center will be located in Hong Kong © Piloting. The specific pilot program and modalities are still being studied and have not yet been introduced.


On 11 March 2009, the People’s Bank of China and the National Bank of the Republic of Belarus announced the signing of a bilateral currency swap agreement aimed at promoting the economic growth of the two countries through the promotion of bilateral trade and investment.


On 23 March 2009, the People’s Bank of China and Bank Indonesia announced the signing of a bilateral currency swap agreement to support bilateral trade and direct investment to promote economic growth and provide short-term liquidity to stabilize financial markets.


On April 2, 2009, the People’s Bank of China and the Central Bank of Argentina signed a bilateral currency swap agreement.


In July 2009, the six departments issued the administrative measures for the pilot RMB settlement of cross-border trade, and China’s cross-border trade RMB settlement pilot was officially launched.


In June 2010, the six departments issued the Notice on Issues Relating to the Expansion of the RMB Settlement Pilot Scheme for Cross-border Trade, which expanded the scope of the RMB settlement pilot scheme for cross-border trade to 20 provinces, autonomous regions and municipalities from the coast to the mainland, and expanded the overseas settlement to all countries and regions.


In August 2011, the People’s Bank of China clearly stated on 23 August that enterprises in Hebei, Shanxi and 11 other provinces could carry out cross-border trade RMB settlement. Renminbi Settlement. So far, the geographical scope of the RMB settlement of cross-border trade has been extended to the whole country.


In November 2012, the internationalization of the RMB officially started in South Africa, and trade between China and South Africa is directly exchanged from the franc to RMB for settlement.


In October 2013, the Fifth China-UK Economic and Financial Dialogue was held in Beijing on 15 October, and Vice Premier Ma Kai and UK Chancellor of the Exchequer Osborne stated in a press release that China and the UK had agreed to a direct transaction between the renminbi and the pound sterling.


In December 2013, the Central Economic Work Conference set out clear requirements for the trend of the RMB exchange rate in 2013, namely “to maintain the exchange rate of the renminbi is basically stable”. This is conducive to the steady progress of the internationalization of the RMB, the stability of world finance, and economic development.


In June 2014, the RMB global clearing network was frequently deployed. on 18 June, CCB acted as the clearing bank for RMB business in London. On 19 March the Bank of China acted as the RMB clearing bank in Frankfurt.


On July 4, 2014, the People’s Bank of China announced that it had decided to authorize the Seoul branch of Bank of Communications to act as a clearing bank for RMB business in Seoul, which became an important step in creating an offshore RMB center in Seoul.


On March 29, 2016, the first RMB internationalization research center in Asia was launched in Beijing. The center was jointly established by the People’s Bank of China (PBOC) China Financial Training Center and Nanyang Business School of Nanyang Technological University (NTU), Singapore, with the aim of conducting research on the Research on the internationalization process of the RMB and its impact on the world economy and trade will be conducted and shared with the public through a public interface. content, set up a financial and economic database, and provide training for domestic and foreign practitioners.


Circulation of RMB


With regard to the analysis of the current situation of the circulation of the RMB outside the country, in the past, the RMB was only circulated in border areas, but now it has been circulated in some parts of the developed countries. Regional circulation and exchange. It can be said that the process of China’s economic development is the process of expanding RMB circulation. The faster the pace of economic development, the wider and larger the scope and quantity of circulation.


Renminbi in Southeast Asia has become second only to the U.S. dollar, the euro, the yen and another “hard currency”. In southwest China’s border areas, the RMB is known as the “small dollar” and is used as a hard currency with a wide range of circulation in Laos. The yuan in the three northeastern provinces can completely replace the local currency in circulation within the country, as far as deep into the Lao capital of Vientiane around. In the Sino-Burmese border trade and tourism activities, the key town of Xiaomengla in Myanmar’s Chan State, the outflow and inflow of RMB is as much as more than 1 billion yuan per year.


In Northeast Asia, the yuan is mainly circulated across the border to Russia and North Korea, as well as Mongolia. Mongolia, in particular, has adopted the renminbi as its main foreign currency. Various banks in Mongolia have conducted RMB savings business. In the border trade with Mongolia, RMB cash transactions account for one-third of all bilateral transactions.


The largest cross-border circulation of RMB is in Hong Kong, China. RMB can be freely exchanged in Hong Kong through various means. Unlike in other neighboring countries and regions, the RMB is used as a reserve currency for investment in Hong Kong. In addition, the RMB is also widely used in Macau, China.


Challenges to the Internationalization of the RMB


Numerous obstacles remain on the road to the internationalization of the renminbi. The main factors affecting the internationalization of the RMB include the insufficient growth of the international circulation of the RMB, the depth and breadth of the domestic financial market and the international financial crisis. Insufficient standardization; the external value of the renminbi may change dramatically in the process of internationalization, hindering economic policy autonomy.


Of these, the lack of international circulation of the RMB will be the biggest problem. This is because during the golden age of the gold standard, although Britain had a huge current account surplus, it exported its capital to the rest of the world through the export of capital. A large number of pounds sterling; after the establishment of the Bretton Woods system, the United States has provided the world with dollar liquidity through its current account deficit. Although China has become one of the world’s largest trade surpluses, foreign direct investment is still relatively small.


How DC/EP is driving the internationalization of the RMB


DC/EP can reduce investment in offshore RMB clearing house


The establishment of an offshore clearinghouse requires significant upfront capital investment in offshore settlement infrastructure, such as clearing banks, and this is a major challenge. The scale of investment is easily in the hundreds of billions of RMB. At the same time, as the offshore settlement center is located outside the country, the settlement needs to be managed offshore, which increases the difficulty of control and is not conducive to national management.


The DC/EP is managed through a digital wallet, on the basis of which only the uniform use of RMB by both parties to the transaction is required to complete the transaction, without the need for the Once again, transactions are settled through offshore clearing banks. If the exchange with a foreign currency is required, the transaction can be cleared directly through the Chinese central bank, which greatly improves settlement efficiency.


DC/EP Promotes Direct Settlement of RMB with Other Sovereign Currencies


At present, the RMB cannot settle directly with the currencies of many countries and needs to use a third party currency such as the US dollar as a settlement instrument. In this settlement process, the time for currency payments and receipts is prolonged, and in addition, two additional currency settlement charges (foreign currency — USD) need to be paid. , USD-RMB) increases transaction costs.


Through the use of DC/EP, as long as both parties to the transaction recognize the value of the RMB, you can use DC/EP for direct trade settlement. If the entities (enterprises, individuals) holding DC/EP have a demand for the use of local currency, they can request the Central Bank of China for their own holdings of digital Assets are liquidated to obtain the local currency of the country where the business is located. This approach effectively improves the overall efficiency of trade transactions. If the entity holding the DC/EP is a national or regional government, it can directly use the DC/EP if there is a need to increase the use of local currency. EP as a government asset to issue additional currency to meet currency requirements in circulation in the country/region.


Reduction of international trade disputes


In international trade in goods, there are many reasons for disputes and controversies, which can be broadly summarized into the following five situations: contract law and… Inconsistent interpretation of international trade practices; contractual terms are not sufficiently clear and are interpreted differently by the parties, with no customary uniformity. interpretation; factors beyond the control of the parties have arisen in the performance of the contract which has prevented its performance or its timely performance, and the parties are not satisfied as to whether the Disagreement as to whether the contract can be rescinded or deferred; the buyer does not issue the letter of credit on time, does not pay the ransom note on time, unreasonable refusal to accept the contract Lack of timely dispatch of ship or conclusion of the contract of carriage, the designation of the place of delivery, etc., of goods or when a buyer is responsible for carriage; the seller does not deliver on time Or failure to deliver the quality, quantity and packaging specified in the contract, failure to provide suitable documents as specified in the contract and letter of credit, etc.


In a nutshell, the problem arises due to contract performance or payment disputes.


The issue of payment in the above conflict mechanism will be well resolved if DC/EP, which supports smart contracts, is introduced. The buyer pays the seller at the beginning of the transaction, but the payment does not go into the seller’s digital wallet all at once. The payment is made in installments according to the progress of the contract, and if a dispute arises during the period, a dispute resolution and remedy mechanism can also be agreed in the smart contract.


DC/EP can provide a scientific and reasonable solution to the current problems in RMB internationalization, as long as they do not involve macro-monetary policy or politics.


DC/EP can be said to be the first CBDC in the world to be put into practical testing, with the first-mover advantage in terms of time and drinking. If the value of its blockchain application is fully exploited, it can take full advantage of this to promote the internationalization of the RMB.