Super Knot Of RMB Internationalization

Previously, the Bank of China, one of the four largest banks, has seen money laundering.

Although it was followed by Bank of China itself, it said that "excellent Huitong" was a financial innovation product that was reported.

Is it a financial innovation or loophole?

In my opinion, money laundering may be heavier, but there is no violation. That is for sure.

But this leads to another layer of concern.

As of 2012, in the 7 categories, 11 items and 40 sub items involved in capital account liberalization, there were only 4 items in China, accounting for 10%, mainly for non residents to participate in the domestic money market, fund trust market and derivatives.

Some convertibility items are 22, accounting for 55%, mainly in four categories: bond market paction, stock market paction, real estate paction and personal capital paction.

There are 14 basic convertibility items, mainly in credit instruments trading, direct investment, direct investment liquidation and so on.

There are 0 items that are fully convertible.

This means that the degree of control of RMB capital is still quite high. Although internationalization of RMB and internationalization of financial business have become a trend, and with the promotion of key links such as the free trade area as an important part of the central policy, the policy of similar excellent convergence has not been released.

In the praise of foreign media, it should be seen calmly that, despite the name of the seventh largest settlement currency, the share of global payment and liquidation is only 1.4%, while the US dollar is 42.5%.

In view of the fact that many pactions are carried out between Chinese enterprises and their subsidiaries in Hongkong, the international status of RMB from trade settlement currencies should be very different.

The reason for this is very simple. An important background of international monetary dependence is the trade deficit, which is in surplus for a long time in China. Its exports are the recovery of money, which makes it impossible for other sovereign states to hold Renminbi.

This is a very difficult problem in the international monetary field: a currency needs to meet a basic requirement to become an international currency. The economy issuing the currency must be in a long-term trade deficit position, so that the currency can be injected continuously into the international community and be held by international capital and government.

On the other hand, to maintain global confidence in the reserve currency, it is also required that the currency issuer should continue to record current account surplus.

For a country's balance of payments, the two are unlikely to happen at the same time, so it is called a difficult problem.

There is an international saying about this problem called Terry Finn.

Therefore, the internationalization of RMB is the premise of deficit.

However, in the current situation of China's huge trade surplus, the RMB surplus and appreciation also want to be the international reserve currency, obviously no one really plays with you.

Could it be that the internationalization of RMB for so many years was just a bluff?

It seems that the international reserve currency enjoys its unique rights, and at the same time, it must assume corresponding responsibilities.

In that case, how did the United States turn its US dollar into international currency?

The world's various currencies, which can stand out in this international financial melee and embark on the mighty currency of international financial hegemony, will have an unusual experience.

In the process of the internationalization of the dollar, there are three important international events, which play a key role in the "sea going" of the US dollar.

First, in July 1944, the Bretton Woods Agreement confirmed that the US dollar based international monetary system was established.

It contains two basic elements: one is the free convertibility of the US dollar and the gold; the other is the fixed exchange rate system of the US dollar and other currencies.

This means that the US dollar has become the main international reserve currency, which can replace gold as an international means of payment, thus establishing the central position of the US dollar in the post-war capitalist world financial field.

This is the first important international event.

The second event is the Marshall plan.

The US plan to assist Europe after the second world war is also known as the European recovery plan.

At that time, the European economy was on the brink of collapse, and food and fuel supplies were extremely scarce, and the import needed was far greater than its ability to pay.

Without a lot of extra assistance, it will face a very serious economic crisis.

To this end, the United States allocated about 13000000000 US dollars to Europe, most of which were grants.

This was a huge number at that time.

The essence of the plan is that the United States spread a large amount of US dollars to Europe.

In this way, Europe can get the usufruct of the dollar without any need to export goods.

The third event is the emergence of the WTO protocol.

In October 29, 1947, 23 countries, including the United States, Britain and France, signed the general agreement on Tariffs and trade in Geneva.

We should gradually reduce tariffs and other trade barriers and abolish discrimination in international trade.

The increase in post-war trade has played a huge role in the US dollar's position as a global currency hegemony.

In general, the trilogy of the internationalization of the dollar can be summarized as follows: first, the Bretton Woods Agreement - the Central Bank of the central government has made a gentleman's agreement to reach a consensus; the second step is the "Marshall plan" - the United States generously exports its currency; and the third step, the general agreement on Tariffs and trade, to eliminate trade barriers and facilitate the expansion of the US dollar.

The trilogy of the dollar cleverly avoided the weakness of Terry Finn's international currency.

We can see that in the Bretton Woods system, the US has always been a current account surplus.

Even if the scale of earnings is small, for example, at most 2% of GDP, it can be seen that exporting US dollars does not necessarily require trade deficits.

The main channel for the us to push the US dollar into the world is foreign aid, military expenditure and other means of capital export. Under such circumstances, the United States can maintain a favorable balance.

The problem of Terry Finn may be very predictable. As an international currency, it is indeed contradictory. Is that totally irreconcilable?

If the international currency has been determined in advance, then the international currency will achieve the export of money through foreign aid or capital outflow, rather than just by deficit.

In this way, there is a solution to the dilemma of Terry Finn.

Just like the United States, people were in a favorable balance at that time.

It seems that Terry Finn's essence is not in this place.

Behind this seemingly universal content, in fact, when the first problem came out, there was a specific target, which was the dollar based Bretton Woods system.

Under this fixed exchange rate system, the US dollar, as the international reserve currency, is endorsed by the US government at a price of 35 US dollars and an ounce of money to convert US dollars into gold at any time.

Indeed, the United States has exported large amounts of US dollars to the world through the Marshall plan, defense spending and foreign goods, so as to ensure enough US dollar liquidity in the system.

At this time, Terry Finn had anticipated a bottleneck: since 1959, the circulation of US dollars has exceeded the number of gold that supports it.

This has led to a gold market price of more than $40 per ounce, exceeding the US $35 commitment.

When the United States wants to maintain the Bretton Woods system, it can only boost the US dollar by reducing its domestic deficit spending.

And this is bound to affect the domestic economy of the United States, and the expansion of the US economy is not allowed to do so.

This is the essence of the terry Finn puzzle.

The next question is, in the subsequent free floating exchange rate system, the question of Terry Finn does not exist for the US dollar?

Let's take a look at a data share of the dollar's official foreign exchange reserves in the era of the floating exchange rate after the breakup of the Bretton Woods system.

This figure is very interesting. In the middle of 70s, when it first entered the era of floating exchange rate, it was 75% up and down.

Then it plummeted in 80s until the end of 80s, only 50%.

But in 90s, it suddenly rose again and returned to over 70%.

After 2000, it began to decline, and then came to around 60%.

Why does this data change? The 80s crash is corresponding to the rise of the Japanese yen and the German Mark bull, and the dollar has been challenged.

Why was the dollar challenged? Or was it related to the deterioration of the current account?

But strangely enough, in 90s, the US has also been deteriorating in its current account and is in a state of continuous deficit.

But 90s is the golden age recognized by the US economy.

We believe that the US dollar index, which is highly correlated with this data, is also completely cut off from this data.

Obviously, in the era of floating exchange rate, the internationalization of a country's currency is the result of various factors.

As for why? Because the world has escalated, there has been a very important cycle: the United States, as the issuer of the world's largest currency, has the obligation to maintain the monetary demand of world trade, and it is necessary to continuously guarantee the supply of US dollar in the world market.

Therefore, in order to become an international currency, it is still facing difficulties in this way, but this dilemma has been upgraded relative to Terry Finn's primary form: the more dollar the more monopolistic and the more internationalized the more dollar the countries hold, the more foreign debt and deficit the United States is. The more the US economy is not valued, the weaker the US dollar is, the less valuable the US dollar assets or the US dollar claims are.

This is the dilemma of the international currency under the floating exchange rate.

What to do? To solve this dilemma, it is necessary to diversify money or simply get a super sovereign currency.

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As an international currency alone, it can not be carried out.

This conclusion is of great inspiration to our internationalization of RMB.

Step one: even though

To maintain a favorable balance in the current account, we can still achieve the RMB's going out, because the current trade surplus in China is mainly obtained from the US and Europe, but don't forget that China's trade with Asia is in deficit.

Because the current global merchandise trade market is a buyer's market, China has a higher initiative in the trade with the Asian region. We can do this by pushing the renminbi to the Asian region through the demand for RMB payment from the Asian region.

The second step: even if we need to push forward next step.

Internationalisation, China may not need to make profits or losses in the current account. China's continued surplus can also be achieved.

The renminbi can be fully referenced to the original practice of internationalization of the dollar, with foreign aid and foreign investment.

At this time, the plight of Terim is not obvious in our RMB, but on the contrary, we have to worry about the devaluation of our huge reserves.

The third step: looking farther away, the more internationalized the renminbi, the more difficult it will be to upgrade the renminbi.

At that time, perhaps we are very happy that the renminbi has become an international currency, but we also have to shoulder huge responsibilities: cross border settlement funds must be able to flow freely, while the renminbi will appreciate occasionally and depreciate at the same time.

Cross border settlement and opening capital account.

However, for the time being, the cautious mood is still occupying the peak.