[ThePaper] Fan Zhiyong: Increase Import to Promote Yuan-internationalization

On the basis of growing economic strength, China by increasing imports can not only better satisfy people’s demand for higher-quality life, also further promote the internationalization of the RMB.

The benefits of Yuan internationalization are many, including more seigniorage revenues, stronger financing ability of RMB in global capital market, thus less international debt risks. As Chinese economic power grows, so does the position of its currency in global market, which is a natural and inevitable developing trend. Yet, when and how the RMB can ascend to the basket of major currencies, and what kind of relationships would the Yuan build with other key currencies such as the dollar and the euro would still be influenced by various random factors.

Historically speaking, in gold standard, there was no such thing as key currency but gold in circulation. Learning from the experiences of the UK, the United States, Japan, and Europe, China in pursuit of RMB internationalization must understand that it is the sustained development of one country’s economy that defines the value of its currency. At the same time, strategic opportunities at critical points are equally important. Take the dollar for example, after the world war two, the USA stood out as the war crushed nearly all other major economies, leaving dollar the only currency in capable of buying all products and goods around the world. when Germany, Japan and UK recovered, President Nixon managed to sign an agreement with Saudi Arabia that only accept payments for oil in U.S dollars, further consolidating the dollar’s role in global financial market.

Back to the internationalization of the RMB, China however could hardly follow the same path as the USA considering the odds of a major war or monopoly of certain goods needed by every country are extremely small. Therefore, the Yuan internationalization will depend on what China can contribute to the global market demand not to the global supplies. As long as China keeps growing steadily and in health, it will become the largest market in near future, and a market itself in the times of overcapacity is a rare resource.

In the process, China shall build a solid foundation by providing overseas investors with a wide range of RMB investment products, increasing RMB involvement and pricing power in global commodity trading and financial market, and building up our world-level financial institutions and market.

Fan Zhiyong, Research Fellow of National Academy of Development and Strategy, RUC

The article was first published at here.