Internationalization Forced RMB Two Rate Reform

Recently, Zhou Xiaochuan, governor of the central bank, will expand the RMB. Amplitude This is a sign that the easing of the renminbi has been put on the agenda. At the same time, in conjunction with the news of Japan's intention to buy Chinese treasury bonds, we speculate on RMB. Internationalization Speed is increasing, which will accelerate the transformation of the RMB exchange rate formation mechanism to the market.

Japan's intention to buy treasury bonds in China can be seen as a breakthrough on the way of RMB internationalization. Although the number of purchases is not large, the signal significance is far greater than the actual significance. So far, the world's reserve currencies are mainly small currencies such as the US dollar, the euro, the pound, the Japanese yen and so on. It is equivalent to the formation of a "mainstream money club". Although China has signed a currency swap agreement with many central banks, it has not risen to the level of reserve currency. Japan's move marks the first time that some developed countries have recognized the value and status of the renminbi as reserve currency.

It can be predicted that as China's economic strength continues to grow, more and more countries will follow Japan's similar needs. The future demand for Chinese treasury bonds may not be in the tens of billions of dollars, but in the hundreds of billions of dollars. Once this happens, it will have a significant impact on the internal and external market of the renminbi.

Internally, there will be new forces in the Treasury bond market. Although there is no definite arrangement for the future withdrawal of the Chinese bank bonds held by the Bank of Japan, the buying and selling behavior of foreign central banks on China's treasury bonds will inevitably affect the trend of domestic market interest rates, especially after the full liberalization of interest rates, and even affect the effect of the central bank's monetary policy and currency delivery. This situation is somewhat similar to the situation facing the US: once foreign central banks concentrate on selling US Treasury bonds, they may lift the US market. interest rate 。 How China will deal with such a situation and ensure financial security will be a great challenge in the future.

In other words, it may play an adverse role in the reform of the RMB exchange rate formation mechanism. Whether it is internationalization or reserve currency, it requires RMB to float freely. Only in this way can we reasonably determine the price of RMB assets at home and abroad, avoid the disturbance of arbitrage funds to the financial market order, and satisfy the requirements of overseas holders for RMB liquidity. At the same time, it can make the security of RMB assets more transparent.

Free floating inevitably requires the marketization of the exchange rate formation mechanism, that is, the price setting by the participants in the market, which makes it necessary to accelerate the reform of the RMB exchange rate formation mechanism at present. Of course, this process should not be carried out alone, but should be combined with the liberalization of interest rates and capital account liberalization. At the same time, this does not mean that the central bank abandons its management of the market. Whether it is Japan or Switzerland or other central banks, it will enter the market when the market price is extremely volatile. exchange rate I believe China will not be an exception.