On December.26, 2013, Top Ten International Financial News were emerged by the International Institute of Finance of Bank of China together with the "Financial Times". Professor Zhang Liqing was invited to review the 8th news "Among the world 's top ten currency, the internationalization of RMB has reached a new level"(seen at http://vnetcj.jrj.com.cn/2013/12/26062716395577.shtml).
News: August 2013, according to the rankings of global trading currency published by Society for Worldwide Interbank Financial Telecommunications(SWIFT), the RMB came in eighth, accounting for 1.49 percent of all. In September, statistical reports of global foreign exchange trading released by the Bank for International Settlements said that accounting for 2.2% of daily volume in the global foreign exchange trading, RMB was among the top ten again, ranked ninth in all currencies. According to the currencies in international trade finance announced by SWIFT in December, RMB replaced the euro, becoming the second largest common currency after the U.S. dollar.
Comments (Zhang Liqing, Dean of Finance School of the Central University of Finance and Economics): Since the official launch of RMB trade settlement pilot in global payments, the size and proportion of RMB in payments and transactions keep rising, making it one of the major currencies widely used in the global market. In the early 11 months of 2013, the cumulative of RMB for cross-border trade clearing business achieved 4.07 trillion yuan, exceeding the size of 2012. Offshore market of RMB has been blossoming. According to preliminary statistics, the overseas stock of RMB has exceeded one trillion yuan, in which RMB deposits in Hong Kong were more than 700 billion yuan, accounting for over 8% in the balance of deposits in local financial institutions. At the same time, China and other 23 countries and regions signed a currency swap agreement, enabling the total size of to reach more than 2.5 trillion yuan.
In just four years time, the internationalization of the RMB has made remarkable achievements, which should be fully affirmed. Definitely, on the whole, compared with developed countries currency like U.S. Dollar and the euro, the current level of internationalization of RMB is still very low; say, to become a key international currency fully with pricing, payment and storage capabilities, there is still a very long way to go.
Basic conditions for the internationalization of RMB include the continuous expansion of the size of China's economy and trade, the stable rise of RMB exchange rate, the possession of domestic bond market and an open capital account with a high degree of liquidity, etc. For these, there is no fundamental disagreement between experts. However, it is worth noting that there are two important conditions are often overlooked. The first is the central bank's independence. If the central bank does not possess full independence, then RMB could be potentially unstable. The second condition is a mature legal environment. Legal environment is essential for the internationalization of the RMB, without which the process of internationalization of the RMB will encounter resistance sooner or later.
To maintain a more open capital account is a significant element for further internationalization of RMB. Nevertheless, this does not mean that the government is supposed to be completely open in the short term. Actually, if liberalization of capital account is accelerated unrealistically, economic growth and stability of the financial system are likely to face serious challenges in the future. Once financial turmoil occurs, the stable economic growth, the essential prerequisite of RMB’s internationalization is lost, but obviously we cannot weaken the other conditions to achieve this condition. Presumably, at this stage or the next few years, due to the fact that capital account continues to be under a certain degree of control, perhaps internationalization of the RMB will be achieved mainly through the offshore market. For this, we believe that the authorities should not only continue to promote the blossom of Hong Kong's offshore RMB center, but also actively respond to the proposal of the construction of an offshore RMB center by London, Singapore and other areas, which can promote the establishment and promotion of an offshore RMB market in a larger degree.
The RMB’s internationalization is basically a market-driven process, through which the role of government should be mainly reflected in the creation of a variety of conditions, including maintaining a good and credible institutional environment. Absolutely, in this process, the government can also play a role in promoting. For example, to continue to expand scope and scale signed in currency swap agreements, strengthen the policy coordination with major countries and among Asian economies, as well as to further develop the role of the RMB in the regional monetary and financial cooperation and so on is what governments should focus on.
