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Abstract: China has now become the second largest world economy, with its currency, RMB, becoming increasingly widespread. Though China is sure to gain great profits from RMB internationalization, it can never be too cautious on the way. This paper aims at drawing a lesson from Asian financial crisis in 1997, which, though passed for more than a decade, still exerts great influence in Asia, especially in China.
Key Words: RMB internationalization,Asian financial crisis,foreign exchange
ⅠRMB Internationalization
1. Favorable conditions
(1)Stronger economy. It is a prerequisite for any currency to go global. China nowadays has become the world second largest economy, with more than 3 trillion dollars as its reserve by 2013, ranking first in the world.
(2)Widespread circulation of RMB. Ever since the opening-up and reform policy came out in 1979, China has been firmly on the path of “bringing in”and“going global”, which has stimulated wider circulation and flow of RMB throughout the world, especially among Asian countries.
(3)Declining US dollar. The financial crisis has hit America deeply, resulting in its weakening economy. “De-dollarization”has become a consensus nowadays. Besides this, the economic growth center’s moving toward Asia and the recovery period of US dollar have both offered a favorable chance for RMB to rise up and take the lead.
2. Benefits
(1)Increasing China’s status in the international political arena. A nation’s political power largely depends on its economic strength. China will increase its own influence on international economic and then political activities;
(2)Lowering the risk of exchange rate fluctuations. Internationalized RMB will be used as a means of settling accounts and other transactions, much stronger to resist exchange fluctuations;
(3)Obtaining seigniorage revenue. Seigniorage can be interpreted as the interest of issuing the currency. When RMB goes international, China can not only decrease its loss on using foreign exchange, but acquire money and resources from other countries.
Ⅱ.Asian Financial Crisis
1. A Brief Review of the outbreak:
In 1997, Thai administration announced to alter the fixed exchange rate system to the floating exchange rate system,which set the fire on the Asian financial markets. In the following days, the stock market of Hong Kong was under enormous pressure; a financial storm also broke out in South Korea; In Japan, a series of securities and banks fell in to bankruptcy. The Southeast financial storm soon turned into a crisis. 2. Causes of the outbreak
(1) Hot money. Numerous profiteers, such as George Soros,invest their speculative money in Asian countries,creating great turmoil in the market;
(2) Inappropriate exchange rate system. Those countries kept to dollar-pegged exchange rate system while made the market totally open to the outside in order to attract investments;
(3) Heavy foreign debts. Those countries had long been using their foreign exchange reserve to make up for the deficit, as a result, they were not able to pay back the huge debts.
Ⅲ.To achieve RMB internationalization,what China can learn from the crisis
1.Exchange rate system:Pegging to a basket of currencies
At first,most Southeast Asian countries benefited a lot from pegging their foreign exchange rate to US dollar:stable and secure. However, as time marched on, the disadvantages of this policy became more obvious.Nowadays, the world currency system is heading toward multi-polarization. Therefore it is wise to peg RMB to a basket of currencies.
2. Capital market:“Liberalize” progressively
China survived the Asian financial crisis mainly because its capital market was not open to the outside world then. However,opening its market is now an indispensable means to achieve further economic growth. Nevertheless if China opens its market suddenly, it may face the risk of another financial crisis. Therefore we should always be alarmed by the Asian financial crisis and ease the limits on international capital transactions.
3. Gold reserve: expand gold share of reserves
As is shown above, US and Germany keep a steady growth of the gold share of reserves. The growth of Japan is slower while China barely move ahead. If China hopes to sustain the stability of RMB and achieve its internationalization, it needs to ensure sufficient gold reserve. Though after the break down of Breton Woods System, dollar no long pegs to the gold, U.S., as well as European Union and Japan, boast affluent reserves, which will guarantee the stability of their currencies.
. .
References:
[1] Ling Jianghuan & Cao Jie, 2006, Southeast Asian Financial Crisis and RMB Exchange Rate Choice, SOUTHEAST ASIAN STUDIES, No.1;
[2] WANG Yuanlong, 2009, Study on Some problems About RMB Internationalization, Finance & Trade Economics, No.7;
[3] YANG Mingqiu & HE Deyuan,2009, A Research on Asia Strategy of RMB Internationalization, Journal of The Central University of Finance and Economy, No.11.
作者：吕晓宇（Lyu Xiaoyu), 1992/07/29, 女，汉族，河南省新乡市
南京师范大学外国语学院 经贸英语专业 本科三年级（11级）
Key Words: RMB internationalization,Asian financial crisis,foreign exchange
ⅠRMB Internationalization
1. Favorable conditions
(1)Stronger economy. It is a prerequisite for any currency to go global. China nowadays has become the world second largest economy, with more than 3 trillion dollars as its reserve by 2013, ranking first in the world.
(2)Widespread circulation of RMB. Ever since the opening-up and reform policy came out in 1979, China has been firmly on the path of “bringing in”and“going global”, which has stimulated wider circulation and flow of RMB throughout the world, especially among Asian countries.
(3)Declining US dollar. The financial crisis has hit America deeply, resulting in its weakening economy. “De-dollarization”has become a consensus nowadays. Besides this, the economic growth center’s moving toward Asia and the recovery period of US dollar have both offered a favorable chance for RMB to rise up and take the lead.
2. Benefits
(1)Increasing China’s status in the international political arena. A nation’s political power largely depends on its economic strength. China will increase its own influence on international economic and then political activities;
(2)Lowering the risk of exchange rate fluctuations. Internationalized RMB will be used as a means of settling accounts and other transactions, much stronger to resist exchange fluctuations;
(3)Obtaining seigniorage revenue. Seigniorage can be interpreted as the interest of issuing the currency. When RMB goes international, China can not only decrease its loss on using foreign exchange, but acquire money and resources from other countries.
Ⅱ.Asian Financial Crisis
1. A Brief Review of the outbreak:
In 1997, Thai administration announced to alter the fixed exchange rate system to the floating exchange rate system,which set the fire on the Asian financial markets. In the following days, the stock market of Hong Kong was under enormous pressure; a financial storm also broke out in South Korea; In Japan, a series of securities and banks fell in to bankruptcy. The Southeast financial storm soon turned into a crisis. 2. Causes of the outbreak
(1) Hot money. Numerous profiteers, such as George Soros,invest their speculative money in Asian countries,creating great turmoil in the market;
(2) Inappropriate exchange rate system. Those countries kept to dollar-pegged exchange rate system while made the market totally open to the outside in order to attract investments;
(3) Heavy foreign debts. Those countries had long been using their foreign exchange reserve to make up for the deficit, as a result, they were not able to pay back the huge debts.
Ⅲ.To achieve RMB internationalization,what China can learn from the crisis
1.Exchange rate system:Pegging to a basket of currencies
At first,most Southeast Asian countries benefited a lot from pegging their foreign exchange rate to US dollar:stable and secure. However, as time marched on, the disadvantages of this policy became more obvious.Nowadays, the world currency system is heading toward multi-polarization. Therefore it is wise to peg RMB to a basket of currencies.
2. Capital market:“Liberalize” progressively
China survived the Asian financial crisis mainly because its capital market was not open to the outside world then. However,opening its market is now an indispensable means to achieve further economic growth. Nevertheless if China opens its market suddenly, it may face the risk of another financial crisis. Therefore we should always be alarmed by the Asian financial crisis and ease the limits on international capital transactions.
3. Gold reserve: expand gold share of reserves
As is shown above, US and Germany keep a steady growth of the gold share of reserves. The growth of Japan is slower while China barely move ahead. If China hopes to sustain the stability of RMB and achieve its internationalization, it needs to ensure sufficient gold reserve. Though after the break down of Breton Woods System, dollar no long pegs to the gold, U.S., as well as European Union and Japan, boast affluent reserves, which will guarantee the stability of their currencies.
. .
References:
[1] Ling Jianghuan & Cao Jie, 2006, Southeast Asian Financial Crisis and RMB Exchange Rate Choice, SOUTHEAST ASIAN STUDIES, No.1;
[2] WANG Yuanlong, 2009, Study on Some problems About RMB Internationalization, Finance & Trade Economics, No.7;
[3] YANG Mingqiu & HE Deyuan,2009, A Research on Asia Strategy of RMB Internationalization, Journal of The Central University of Finance and Economy, No.11.
作者：吕晓宇（Lyu Xiaoyu), 1992/07/29, 女，汉族，河南省新乡市
南京师范大学外国语学院 经贸英语专业 本科三年级（11级）