What exactly is the internationalization of the renminbi (RMB)? In these days, anything from making some index to seeing the RMB in the SDR currency basket is said to be the "success" of the internationalization of the RMB. As different issues are rolled into one, the internationalization of the RMB itself has become a confusing question.
It is clear that the internationalization of the RMB refers to the ability of the currency to cross national borders and can circulate abroad; it is the process and result of RMB being internationally recognized as the pricing, settlement and reserve currency. A simpler, straightforward, and clear definition is that the internationalization of RMB is the complete liberalization of foreign exchange in and out. For the internationalization of the RMB, it should be pointed out that this is both a process and a result. If we only emphasize the process, many problems would get confounded, and the internationalization may even be in the perpetual process.
Concerning the path of the internationalization of RMB, the issue has now been narrowed down to a complicated "invisible state". Actually, the problem is very simple. The path of RMB's internationalization involves only two directions: institutions and transactions; these include issues of interest rate and exchange rate controls, the decision if interventions should be done or let go if the market should determine interest rates and exchange rates, that is the liberalization of interest and exchange rates. The problem of asset trading is a bit more complicated. On the one hand, it involves in the design and launch of various financial products, and the world can purchase the assets that are convenient for local currency transactions. On the other hand, various restrictions must be relaxed to allow domestic and foreign funds to enter the market freely. In fact, the reason why the internationalization of the RMB is called a "process" is mainly based on the value recognition process in the transaction, rather than the "one step forward, two steps backward" control measures.
Concerning the timing and progress of advancement, generally, it is promoted and realized at the stage of appreciation of the local currency. At this time, the value of the local currency is easily accepted by the external trading market. In 1971, with the disintegration of the Bretton Woods system, the Japanese yen began to appreciate. In 1985, after Japan signed a square agreement, the yen exchange rate began its marketization. At the same time, Japan abolished the principal of foreign exchange real demand and revised its laws on foreign exchange and trade control law, allowing foreigners to purchase Japanese stocks, achieving financing liberalization, interest rate liberalization, as well as business regulation liberalization; in other words, Japan opens its doors of system and regulation. Basically, Japan spent 15 years to complete the internationalization of the yen.
In contrast, China's pace in the internationalization of RMB is slow. From when it first launched the negotiations with the WTO where Anbound proposed the internationalization of the RMB, it has now been 21 years. If we count the time when China joined the WTO in 2001, it would be 17 years. China's total foreign trade has raised from nearly US$59.8 billion in 2001 to US$4.4 trillion today, an increase of nearly eight times. The exchange rate of RMB against the U.S. dollar has grown from 8.28 in 2001 to 6.3 - 6.9 today, and the appreciation has changed throughout 17 years. The crux of the problem lies in the fact that the internationalization of RMB faces widespread inadequate understanding; various reforms and administrative issues are confused with the internationalization of RMB; the promotion works of the internationalization are only done whenever the authorities thought about it, therefore the progress is extremely slow, making today's results extremely disproportionate to China's international market position, and limited the influence of RMB. Facing the "bullying" and strong position of the U.S. dollar in the world market, China could do nothing much.
The independence of China's central bank is also a key issue. The marketization of interest and exchange rates are the key points for the internationalization of the RMB. Both of these "liberalizations" are related to the independent status of the central bank. This is not directly related to ideology but has a lot to do with "doing business" in the world market. If the central bank has to follow ever-changing policies, the credibility of the interest and exchange rate, as well as the real value of the local currency will be questionable. Therefore, without the independence of the central bank, interest and exchange rate liberalization cannot be accepted and recognized.
Final analysis conclusion:
On the whole, the internationalization process of RMB is tortuous and daunting, and it can be said that China has missed the best opportunity. If the Chinese economy is to transform in the future and gradually expand domestic demand, as well as showing the attractiveness and purchasing power of the Chinese market, it is generally believed that the internationalized RMB will not be seen; the RMB payment will only be in a very small range with a higher price. It can be seen that the attractiveness of RMB loans in the international market will also be minimal. It is quite regrettable to see such a situation that RMB has lost more than a decade of time.
