According to a report issued by the Peterson Institute for International Economics in the Untied States on October 22, the renminbi's influence has been greatly enhanced and the renminbi has become the dominant reference currency in East Asia. In this region, seven currencies out of 10 are more closely linked with the renminbi than with the dollar.
The Royal Bank of Scotland (RBS) issued a report on the same day saying that the current global climate favors the Chinese currency as both the U.S. dollar and the euro are under pressure and that global investors are looking for an alternative reserve currency. The RBS expects the renminbi to become fully convertible in the next five years, which will further globalize the currency.
However, Guo Tianyong, a professor of finance at the Central University of Finance and Economics, says the global economic recession cannot be the major driving force behind the internationalization of the renminbi.
The internationalization of a currency depends on the world's confidence in it, the convenience of currency settlement and its usage in global trade, says Guo.
Wei Yanshen, a researcher at the Institute of Asia-Pacific Studies at the Chinese Academy of Social Sciences, says the economic strength of a country dictates whether a currency goes international. Therefore, the internationalization of the renminbi should move forward based on China's internal dynamics rather than by external factors like economic recession in the West.
China's economic growth and the progress in multilateral trade have further improved the international status of the renminbi, says Wei. Since entering the WTO, China has been increasingly integrated in the global economy.
Growing economic ties with other countries have increased the demand of the renminbi and pushed forward the process of its internationalization. Today, China takes up 22 percent of all manufacturing trade in East Asia and has become a regional trade center.
As the world's biggest exporter and a net creditor nation for more than a decade, and because of its economic strength and stable environment, China is in excellent shape to internationalize the renminbi.
However, related Chinese departments have made steady progress in internationalizing the renminbi. At the end of February, China extended cross-border renminbi trade settlement to the whole country.
In June, six ministries and commissions under the State Council jointly issued a list of renminbi settlement enterprises in export goods subject to special supervision. The CSRC also said it would further expand the pilot scale of RQFII and investment quotas, accelerating capital account convertibility of its currency.
Wei adds that during the process of promoting renminbi internationalization, the renminbi settlement business for cross-border trade has shown powerful growth. However, China should be fully aware of the problems and risks associated with internationalizing its currency.
For example, the acceptance of the renminbi by foreign traders should be further improved. Moreover, preventing risks and ensuring safe economic and financial operations are also important on the path to internationalize the renminbi.
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