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Study on the risk of the internationalization of RMB

Author: HaoYu
Tutor: ZhangYuQin
School: Yunnan University of Finance
Course: Finance
Keywords: international monetary system internationalization of RMB exchange rate volatility currency substitution
CLC: F832.6
Type: Master's thesis
Year: 2012
Downloads: 415
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Abstract


The internationalization of the RMB is the inevitable requirement for China’seconomic development and goals. The short term, the internationalization of the RMBwill have to face China’s capital account opening, offshore RMB market, theconvertibility of the RMB, as well as the financial center of China to establish theimportant steps and stages; it is a long way to the target of internationalization of theRMB. Currency Internationalization is endogenous and the international monetarysystem, the internationalization of the RMB must be accompanied by the change ofthe international monetary system. The internationalization of the RMB is certainly anevolutionary process.By examining the institutional foundation of the international monetary system,and a brief review of the history of the evolution of the international monetary system,recalling the yuan currency internationalization process in the economic indicators ofsignificance as a basis, and pointed out the advantages of the process ofinternationalization of the RMB: the larger economies of scale and degree ofeconomic development, is relatively stable and has a strong appreciation trend yuan;obstacles in the relatively weak financial system, the unbalanced industrial structure,as well as the macroeconomic regulation and control capability, theinternationalization of the RMB and must overcome the difficulties. On this basis, wepredict that perform pricing and a medium of exchange function started in the yuanfrom the border trade, international trade has accumulated to a certain scale, thedomestic financial market is also quite perfect, the yuan freely convertible comingtrue, the RMB real expansion of borrowing on international financial markets andinvestment currency, thereby as an international reserve currency, then the RMB trulycome out as an internationalization currency.On a predictable basis, the internationalization of the RMB risk analysis focus onexchange rate fluctuations, currency substitution and the effectiveness of monetarypolicy. Under remained relatively independent monetary policy and capital flows, exchange rate volatility is inevitable. Fluctuations in the sharp exchange rate forforeign trade, international investment has a negative impact. GARCH is used for theyuan against the U.S. dollar exchange rate fluctuations. With the commencement ofthe internationalization of the RMB exchange rate of the market mechanism for theestablishment and improvement, a period of time, it can be speculated thatfluctuations in exchange rates will be more severe. For the import and exportenterprises and financial institutions, the exchange rate risk due to fluctuations inexchange rates will increase. Currency substitution is in the open economy,convertible under the conditions of domestic residents to lose confidence in the localcurrency and then use foreign currency, local currency some or all of the functions ofthe foreign currency alternative. Means that the convertibility of the RMB capitalaccount liberalization, internationalization of the RMB, so there the possibility ofcurrency substitution. The test results show that several data directly to the existenceof cointegration relationship. According to the model can be exported from thecointegration equation yuan and the dollar currency substitution equation.With the opening of the economy, the establishment of the offshore market andoverseas currency deposits with the international hot money flows, changes in thepresence of currency substitution as well as domestic monetary policy transmissionmechanism, will result in the weakening of the effectiveness of monetary policy.Respectively from the money supply to measure the effectiveness of monetary policyon output and price levels. Use the unconstrained VAR model, joined the exchangerate and the degree of openness, the degree of openness has an impact on output andprice levels. Further to take the test of causality, the Granger and Instant cause of theopenness of output volatility and the volatility of the price level. It can be inferred that,with the deepening of the degree of openness, the effectiveness of monetary policy tosome extent, will be weakened.

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CLC: > Economic > Fiscal, monetary > Finance, banking > China's financial,banking > Exchange rate,foreign financial relations
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