[Caixin.com] (Wang Wei, the reporter) "The standard is international, but the efforts are domestic", which is the internationalization process of the RMB, described by Huang Yiping, Vice-President of the NSD at Peking University.
In the seminar of "the road of internationalization of the RMB," recently organized by EMBA of NSD in Peking University, based on reports about Asian Development Bank, researched by Fan Gang, the director of National Economic Research Institute, China Reform Foundation, Huang Yiping elaborated on it.
He pointed that measuring the level of internationalization of the RMB, internationalization rate “could” reach 12%, according to the total size of China's economy. But after calculating the indicator of openness in capital markets, the depth in financial markets, economic freedom, the internationalization level is only about 2%.
The latest report on economic freedom by the Heritage Foundation shows that the ranking of Chinese economic freedom declined, and it is still "not free."
"Rising from 2% to 12% is what we need to do," said Yiping Huang, "and most of work should be done inside the country."
He pointed out three strategic frameworks. Firstly, the international market should be given the opportunity to use RMB. This means that the scale of economy should be large enough, and the market needs to be open.
Secondly, foreign institutions or individuals should have the opportunity and the will to use RMB "If there is no place to use the RMB, with RMB in hand, the internationalization of the RMB will not go far."
He took Hong Kong's offshore market for example. Some time ago, the demand of the RMB fluctuated, which was due to the fact that everyone wanted the RMB, when it was appreciated and they did not want it when it was devaluated." They actually consider the RMB as a simple value-added product, which is not sustainable."
He pointed out that the RMB accumulated in offshore markets requires opportunities for investment. The financial markets should be open, and have enough depth, whether it is in the onshore or offshore markets.
According to the data of Hong Kong Monetary Authority (HKMA), the total cash pooling of RMB in Hong Kong reached 910 billion yuan until the third quarter of 2013." But most are still sitting there, and RMB investment products are inefficient," said Zhang Ming, the associate researcher of Institute of World Economics and Politics Chinese Academy of Social Sciences. Wang Tao, chief economist in UBS said, “the availability of onshore RMB assets remains low."
Taking Japan for example, Huang Yiping said that in the 1980s and early 1990s, Japan promoted the internationalization of the yen. The yen accounted for about 9% of GDP in the international reserve currency system, but now it has slipped to 3%. In addition to the appearance of long-term economic weakness and the disappearance of expectation of yen appreciation, the more important reason is that Japan’s capital markets are not an open market, giving few opportunities for foreign investors, and the liquidity is low.
"There are not only investment channels, but also it requires easy exit," he said. Inability to exit when doing investments will not attract investors.
The third part of the policy framework refers to that "people hold your currency, and fundamentally they have confidence in your system," Huang Yiping said. "A high-risk country attracts short-term investors instead of long-term investors." There are so many problems in the US, but people are still willing to invest in foreign exchange reserves in the United States, because they have confidence in the stability of her systems and the potential for innovation-based growth.
He proposed three directions to make great efforts. One is to make the central bank's monetary policy decisions more transparent, so that international investors think it is predictable and trusted. The second is to establish a good legal environment. Thirdly, inevitably, it involves political reforms." All of these factors depend on whether a country's politics and economics is stable in the long term, and the economic system alone is not enough."
Translated from Chinese by Daniel Singer
