The Effect of Rmb Internationalization

Effects on chinaware Advantages Enterprises in China Enterprises in China whitethorn return a lot from the internationalization of Renmibi. First of all, the cost of currency exchange gouge be saved and the jeopardize of exchange rate of using of other currencies can be reduced, if Renminbi become a deal out settlement. Also, RMB as an investment currency, if foreign assets increased demand of it ,China can reduce the interest rates of RMB assets, thereby reducing their financing costs, and further, companies can go overseas to issue RMB-denominated bonds, thereby expanding the scope of financing and address the problem of currency mismatch.Further much, Domestic firms can example the RMB to invest abroad, to achieve Chinese tuckprises going out strategy, integrating into the global economy. Peoples Republic of China China may have sooner a lot of advantages from it too. First, it may enhance the international status of China through internationalization of Renminbi by incre asing Chinas voice in the international friendship and the influence of China in international economy, as the internationalization of its currency may promote the expansion of Chinas fiscal service sector.Also, China may collect seignioragefrom the rest of world, which seigniorage defined as the margin between the denomination of the notes and the cost of issuing the notes obtained by the note issuer, if RMB get commodity pricing, which can use it to spoil the worldwide resources and avoid U. S. dollar liquidity constraints, that leads to expansion of seigniorage revenue. More, China has accumulated foreign exchange reserves to ease the pressure, reduce the risk of reserve assets shrink, reducing the dependence of other countries (mainly U. S. ). Chinas foreign exchange reserves, mostly are U. S. overnment bonds, which makes China and U. S. in a delicate state. After global financial crisis , the Chinese foreign exchange reserves shrink every moments, but China is not found in other better investment options, holding dollar debt is the best choice for China at this moment. Financial organizations The financial organization may also take advantages through RMB internationalization. First, the import and export trade companies for RMB provide clearing services and financing for foreign importers to provide support to the RMB business so as to expand the scope of commercial edges and to increase the dough of commercial banks.Furthermore, The existence of economies of scope to improve the competitiveness of financial institutions, and the increased use of onshore yuan to improve market liquidity, more importantly, the central bank can protect the lender of last resort to provide liquidity for financial institutions to protect, Chinese financial institutions to reduce foreign exchange liquidity risk, which in concert with the economies of scope to improve the overseas Chinese financial institutions to conduct renminbi business competitiveness.Also, RMB ove rseas demand also contributed to the innovation of financial instruments and the development of renminbi derivatives market. Last ballock not the least, it may benefit from increasing the influence of Chinas financial markets, and promote international financial center , like Shanghai, as well as an offshore financial center, Hong Kong, the development of renminbi, the Chinese financial markets and further integrate into the international financial markets. Disadvantages PRC governmentThe PRC government , however, still has to face round challenges in order to achieve RMB internationalization. First of all, as Chinas chapiter markets are still too shallow, any significant changes in cross-border capital flows may easily lead to large fluctuations in Chinas asset prices. Overseas demand challenges the RMB of Chinas monetary policy , while people who holds the RMB assets may cause the increase of cross-border capital flows and exchange rate fluctuations, and thus affects the stabil ity of Chinas financial system.Also, if a currency is fully internationalized, which means that it can easily be obtained in international financial markets, the country with an internationalized currency will be very vulnerable to speculative attacks from international speculators. More, hot money will enter China causing economic crisis. As Hot money will lead to economic crisis in Chinas property market and the stock market, as investors examine more to invest their money in high-return business. Like Guangzhou Tang Hang Metal Materials Co. , Ltd. eferred payment for imported goods in China so as to salary from the appreciation of the renminbi. Experts said that Chinas foreign exchange regulations, the RMB settlement may make this form of arbitrage is more profitable, because the company can enjoy a more favorable foreign exchange rate. According to the monetary policy report from the central bank( page 16), China was trying to fix the problem of hot money. , 2010 ? 11 ,2 011 ? 3 , ?2011 From Second quarter of the monetary policy report from Peoples bank of China Last but not the least, it is more arduous for China to control the inflation rate. Chinas battle to curb inflation even more difficult, because People Bank of China must print more RMB to buy dollars flowing into the country. China has more than 6% inflation. And Beijing want to precisely control the level to curb the appreciation of the yuan revaluation, but the internationalization of the RMB has accustomed tremendous upward pressure.Brookings Institution China scholar Prasad (Eswar Prasad) said that the management and increase appreciation of the RMB yuan in international trade and financial legal proceeding of the importance, both in the short term this is a contradiction. According to the monetary policy report from the central bank, (page 1 ), there is still pressure in controlling the amount of RMB. , , 5 ,M2 M1 4. 6 8. 5 6 , ,M2 M1 0. 8 0. 4 , .. From Second quarter of the monetary policy report from Peoples bank of China