Yu Yongding: RMB Internationalization Should Be Subject To Liberalization Of Capital Account

I want to make an important point that the road map of RMB internationalization is essentially a roadmap for the liberalization of capital account of China's monetary authorities. This is a problem I have been emphasizing for years. The essence of RMB internationalization is the liberalization of capital account, though they can not be equalized.

Every major (not all) step of RMB internationalization is essentially a step of liberalization of capital account. The settlement of RMB imports has made the non residents get RMB. This is an important step in the internationalization of RMB, but this is actually an important step in the liberalization of capital account. I am an importer. I want to buy goods from Hongkong. The first step I want to do is to convert my RMB into US dollars or HK dollars in Shanghai and take foreign exchange to Hongkong to import products. You can not directly use Renminbi to buy foreign products. Even if foreigners are willing to accept the renminbi, they will not sell it to you, because if a country's currency does not have the capital account liberalization policy, it should not flow out of the territory abroad, even if it is used to pay imports. Therefore, the import RMB settlement is an important step in the liberalization of capital account.

Let's look at the "reflux mechanism", which enables non residents to invest in China. financial assets 。 This is also an important measure of liberalization of capital account in spite of the restriction of RMB investment. In Hongkong, dim sum bonds are issued, and RQFII enables non residents to purchase Renminbi bonds, stocks and so on, all of which are related to liberalization of capital account. When we discuss the internationalization of RMB, we must never forget that we are also talking about liberalization of capital account.

There's a problem here. Where is the problem? The liberalization of capital account is subject to certain timing. There are three big models in the world: the first is gradualism; the other is the big bang, which is opened up. This is true, but not very much; the third type is the more common mode now, which is the mode of integrated advancement, which emphasizes the capitalism and should be part of a comprehensive structural reform with simultaneous promotion and integration. But I want to emphasize that no matter whether it is gradualism or integration, there is one thing to do first and what to do afterwards. In addition to the big bang, we can ignore the timing problem. Other models need to have a time series problem. There is a road map, what to do first and what to do afterwards.

　　 RMB The roadmap of internationalization and the liberalization of capital account may conflict. The road map of RMB internationalization must be implied. capital account The road map of liberalization is different. Why RMB internationalization? Let RMB become a means of value storage and a trading medium abroad, and the goal of liberalization of capital account is not the same as the purpose of RMB internationalization. When you set the road map of RMB internationalization under the goal of RMB internationalization, you may not think too much about the timing of capital liberalization, but in fact, you are promoting the liberalization of capital account aimed at internationalization of RMB. This may lead to errors in the timing of capital account liberalization. According to the roadmap of liberalization of capital account, after you solve the three problems, you can realize the liberalization of capital account after the exchange rate can be fully floated (including macroeconomic stability, market construction, low leverage ratio and other factors). But if we consider the internationalization of RMB, we will start with RMB settlement. The settlement and reflux mechanism of RMB means the freedom of short-term cross-border capital flows. As I said earlier, these liberalization should take place at the very late stage of liberalization of capital account. When we pushed the internationalization of RMB, liberalization of short-term cross-border capital flows was greatly advanced. Taking this as our first step towards internationalization, this creates a problem: before many conditions are satisfied, short-term capital cross-border flows will be realized before exchange rate liberalization and reasonable risk-free yield curve are formed. Of course, the starting point of RMB internationalization is not necessarily RMB settlement. But we will not discuss this issue here.

On the other hand, we should stress that the central bank has paid attention to the impact of RMB internationalization on capital projects, so the Chinese monetary authorities have not given up control. Especially recently, the central bank has particularly stressed the importance of short-term cross-border capital management. So far, the liberalization of short-term cross-border capital flows is only partial, with restrictions on the number of flows and the flow channel. However, under the current domestic and international situation, part of the liberalization of capital account and the liberalization of problems will inevitably lead to the prevalence of arbitrage and arbitrage. Theoretically, the free flow of capital will eliminate the opportunity of foreign exchange and arbitrage, but it is obvious that China can not fully open its capital account at present.