Renminbi on bumpy road to internationalization
- By Zhang Yugui
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E-mail China.org.cn, March 6, 2016
On the other hand, China's Belt and Road initiative, Silk Road Fund, and Asian Infrastructure Investment Bank are also important paths of renminbi internationalization. China is constructing an Asia-Pacific free trade area, where its currency can play the role as an anchor currency. This is an important step for the renminbi to get rid of restraints imposed by the U.S. dollar.
As a leader of current global financial system, the United States is certainly not willing to see such fast internationalization, so the renminbi will definitely encounter some external resistance, for which China needs to make a good preparation. Modern finance is by no means represented just by banks, securities, bonds and currency, but is a comprehensive reflection of a country's science and technology, output, innovation, international coordination ability and leadership.
Since the Bretton Woods system, neither Japan nor Europe has been able to serve as a long-term guarantee party for global finance, especially the currency system, because of weakness in certain aspects of the aforementioned fields.
Global currency history indicates the pound's and U.S. dollar's dominant position as world currency originate from their leading production capacity, global trade system and the construction of financial trade and allocation centers in London and New York, as well as the corresponding financial institutional culture.
More importantly, Britain and the U.S. build up global naval powers to defend their monetary hegemony. China is improving its power on the sea and started to provide public security and financial reform products recently. These endeavors constitute the foundation for the renminbi to become a major international currency.
Recent fluctuations of the renminbi exchange rate against the U.S. dollar are the result of China's comparatively smaller comprehensive national power and multiple external pressures. These are unavoidable risks and uncertainties in currency internationalization. To some extent, the country needs to improve its management of a complicated financial system as well as reserve capacity.
China is far from an expert player in global capital market. The decision-makers should be extremely vigilant to the risks of renminbi exchange rate changes, must not loosen financial security controls while seeking the bonus of renminbi internationalization, and must not ignore the necessity of enhancing international competence of China's real economy.
The author is a professor of economics with Shanghai International Studies University.
The article was first published in Chinese and translated by Jason Lee.
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