The Proportion Of RMB's Overseas Transactions Should Be Increased.

He Qing, an associate professor at the school of Finance and finance, Renmin University of China, held in March 28th at the Renmin University of China's Institute of International Monetary Studies, "the great financial thinking".

The internationalization of RMB is a general trend. Based on the fact that RMB has become the major international currency of the region, it is necessary to speed up the proportion of RMB transactions in major international financial centers and build a well-developed offshore market, which is conducive to maintaining the international attraction of RMB and promoting the internationalization process of RMB.

So, how to choose and build RMB offshore market?

In order to study the global distribution of currencies and the construction of offshore markets, he used the global transaction data of major currencies in the world from 1995 to 2013, and conducted quantitative analysis of the factors affecting the regional distribution differences of international currencies. We found that trade and capital flows between the inflow and outflow countries, the size of the economies of the inflow countries (population, GDP per capita), the degree of financial development, the legal system and the language and culture had a significant impact on the regional distribution of the international currency.

Trade and capital exchanges are important because the flow of money in the international arena requires economic transactions as a carrier to expand the scale of international currency's circulation and use, and thus exert economies of scale. Similarly, the higher the total population and per capita GDP of inflow countries, the higher the demand for international currencies for inflows, which is more conducive to the scale economies of international monetary flows; the degree of financial development and the legal system indirectly affect the global distribution of international currencies by influencing the international transaction costs and information costs; lastly, the same language and cultural habits are conducive to enhancing the recognition of currency inflows to international currencies, and increasing the willingness of inflows to hold international currencies, thereby increasing the proportion of currencies in local transactions. He Qing further explained that the reason for currency flows is to go abroad and to enter the country.

From this conclusion, He Qing believes that the financial and trade volume between China and the United Kingdom, the United States and Japan is not significantly lower than that of Hongkong and Singapore, while the total population and economic scale of Britain, the United States and Japan are also much higher than those of Hongkong and Singapore. Theoretically, the Renminbi should have a relatively high trading proportion in the three countries, but the reality is that Hongkong and Singapore have become the main offshore RMB market because of the convenience of liquidation, settlement, low transaction costs and similar language and cultural traditions.

At the same time, Britain, the United States and Japan also belong to the sovereign currency. The currency of the world In order to maintain the status of the sovereign currency and reduce the proportion of Renminbi in local transactions, strict capital controls impeded the flow of RMB to the United Kingdom, the United States and Japan, making the RMB's overseas market difficult to form; due to the great differences in social development level, language and culture, etc. RMB A low sense of identity and low willingness to hold renminbi assets.

Through the study of major international currencies, he Qing found that international currencies were more concentrated in London New York and other major international financial centres. Historical experience also shows that the US dollar always occupies the largest share in the official foreign exchange reserves of other countries. The key lies in having a well-developed global dollar offshore market and maintaining a high share of trading in major international financial centres, which is difficult to replace.

With the increasing status of RMB trade settlement and the expanding scale of currency swap, the location and layout of offshore RMB centers is very important. In Europe, many international financial centers such as London, Luxemburg, Paris, Frankfurt, Zurich and so on all hope to become RMB offshore financial centers, but the size of the RMB offshore market in Europe is still lagging behind in Asia.

He Qing believes that the improvement of the current RMB internationalization depends largely on the upgrading of the valuation and settlement functions, but it still plays a very low role in financial transactions and international reserve currencies. Even the valuation and settlement functions are more of a regional currency role. At the same time, because the capital account is not yet fully open, the transaction of RMB financial assets is still in its infancy, and there is still a big gap from the mature international currency.

He suggested that since the internationalization of RMB is still in its infancy, the feasible way to raise the level of internationalization of RMB in the short term is to increase its use in Asia. In the long run, increasing the scale and trading proportion of RMB offshore financial business in major international financial centers will be an important symbol of RMB becoming the major international currency.