RMB internationalization and the construction of onshore capital market
PAN Yingli, a professor at the Antai College of Economics and Management of Shanghai Jiao Tong University, explained how to promote RMB internationalization and the construction of onshore capital market on the 14th Hongru Forum hold on Aug 28, 2015.
1. The target of RMB internationalization
The minimum target of RMB internationalization is international trade, international investment, international financial assets and liabilities in a transaction denominated in yuan to be used, namely the internationalization of RMB-denominated fulfilling its functions. It is only through pricing, China’s economy and various economic entities is possible to avoid exchange rate fluctuations in the dollar standard to avoid systemic risk.
The highest level of internationalization of the RMB, the currency of the country as an international currency is actually playing the role of global banks. Government through the issuance of bonds to raise low-cost funds, equivalent to bank deposits, and the corporate and financial institutions equivalent to a global investment banking business of operating assets,foreign investment can give high returns as global banks to bring international currency issuing countries huge spread income. In practical terms, the United States from 1996 to 2010 under the current account deficit was $ 6.98 trillion, while the U.S. net foreign debt increased by only $ 2.3 trillion, the U.S. super-privileged to bring this global banking deposit and loan interest income is $ 4.67 trillion.
2. The layout and building of RMB offshore market shall be fully opened ahead of the onshore capital market
Firstly, there are defects on the basic system, market depth, resource allocation, decision and implementation of independent monetary policy of the onshore market; to avoid investment bubble and financial crisis, the overall opening of onshore market shall be completed when the entire reform has been accomplished;
Secondly, the rise of RMB shall be the course of making it capable of supporting more overseas high-yield assets rather than letting overseas capital dominate more high-yield assets in China.
3. The strategy of RMB internationalization is: “Steadily create international demand preliminarily, stimulate and release overseas supply later”, while the layout of RMB offshore market belongs to “Steadily create international demand preliminarily”. A fully opening of mainland capital market is the way to stimulate and release the overseas supply of RMB assets, while the most important way is to issue low-cost bonds to overseas.
4. It is suggested that the Chinese government shall develop Australia, Dubai, Bombay, Moscow, Hongkong, Singapore, Luxembourg, Cayman Islands and London as the key RMB offshore markets. The RMB offshore market development in the former four regions shall focus on improving RMB exchange value effect, while the last five shall focus on financial transaction network development.
“Hongru Forum” is a public seminar jointly launched by Hongru Financial Education Foundation and SIFL Institute, and is held regularly once in two weeks. The seminar pays attention to various issues in China’s finance and macro-economy, and devotes itself to building a platform for cross boundary exchanges among excellent scholars, government and market institutions.
