The Belt and Road Initiative and internationalization of Renminbi (RMB), the Chinese currency, are two strategies that serve both China’s national and global interests, according to a report released on Oct 8.
The RMB international Report 2015, done by the International Monetary Institute (IMI) of Renmin University of China, said China has been promoting the two important strategies as an emerging country and the world will be benefiting from implementation of the two strategies.
Ben Shenglin, the executive director of IMI, believed China has made good progress with RMB internationalization since 2009 when China first started cross-border RMB trade settlement service on a trial basis.
Belt and Road Initiative is a great undertaking beneficial to all along the line. It also offers a historic golden opportunity for RMB internationalization, he added.
For a start, the Belt and Road Initiative, or the Silk Road Economic Belt and the 21st Century Maritime Silk Road, were put forward by President Xi Jinping during his overseas visits in 2013.
The routes run through the continents of Asia, Europe and Africa, connecting the vibrant East Asia economic circle at one end and developed European economic circle at the other. Under the initiatives, highways, railways and air routes will be established, and Chinese regions will further integrate resources, policies and markets to connect with the outside world.
As the Belt and Road Initiative are executed, the RMB internationalization will facilitate financing of the encompassing countries. It will also deepen regional economic integration, said the report.
Growing foreign trade and Chinese investment, and more Chinese companies going global under the implementation of Belt and Road Initiative will add support for RMB internationalization.
The report pointed out that studies have demonstrated that a larger proportion of the most-frequently used domestic currency will effectively prevent financial risks, lower transaction cost, enhance overall economic competitiveness and accelerate the integration of trade and economy in the region involved.
China is the country with the most foreign currency reserves in the world and has a high savings rate. As the country’s capital account is gradually liberated, the offshore market of RMB will witness a rapid expansion, which will provide sufficient liquidity of RMB for the enterprises and institutions along the “One Belt and One Road” region.
RMB is increasingly accepted in international trade, which will bring down the trade costs with China, facilitate trade settlement and avoid the risks of using a third-party currency, said the report.
As the world’s second largest economy in the world, China serves as a key trade partner along the “One Belt and One Road” region. With political stability and cultural prosperity, China leads the region in economic and financial development. It is also fully prepared for the expanded use of RMB in this region.
As the Belt and Road Initiative moves forward, it is necessary to make more efforts in enhancing convenience and lowering transaction cost so as to increase the share of RMB in trade, financing, investment, financial transaction and foreign exchange reserve, which will inject sufficient momentum to make RMB a major international currency in the world, said the report.