Incorporating SDR Into "Mission Migration" Will Become The Dominant Currency.

The renminbi was formally introduced into the countdown to the special drawing rights (SDR), and the new basket of currencies will come into effect in October 1st.

During the ten month buffer period, the central bank made some preparations for the formal incorporation of RMB into China, and actively promoted the role of SDR in the international monetary system under the G20 this year.

The World Bank successfully issued SDR valuation bonds, priced and liquidated in Renminbi, for a period of three years, with a coupon rate of 0.49%, with a scale of 500 million SDR, and 2.5 times over subscription.

In September 28th, Yao Yudong, the chief economist of Dacheng Fund Management Limited and the former director of the central bank financial research institute, said in an interview with reporters that the official "basket" of the RMB is an important milestone in the internationalization of RMB, and to some extent, it can be called "WTO of finance".

After hard struggle, success is hard won.

Thanks to the Central Committee and the State Council, the central bank and the State Council have been attracting close attention and taking the opportunity to assess the situation. This is also the result of close cooperation between the people's Bank of China and several departments.

Yao Yudong said that after the "basket", the renminbi will gradually become a widely accepted international currency in the world and supplement liquidity to the global economy.

The longer the RMB enters the SDR, the stronger the RMB's international monetary attribute.

He predicted that, after waiting for the international market to adapt, the renminbi would become an advantageous currency like other international currencies, with a long-term appreciation basis.

A typical example of the recent appreciation of dominant currencies from fundamental data is the yen.

Of course, if China wants to ensure the smooth passage of this "quiz" in the next SDR review five years from now, the RMB will become a truly meaningful and widely used international currency. IMF

As the Fed enters the interest rate cycle and the global economy continues to grow, global liquidity will undergo structural differentiation. The overall tightening of international liquidity gained by emerging market economies may lead to the emergence of a "dollar shortage" similar to that of the 2009 in emerging economies, and even lead to violent financial turmoil in some countries.

The diversification of international reserve currency is one of the development directions to deal with the global liquidity squeeze and overcome the "sovereign currency conflict".

The yuan already has the potential to replenish global liquidity.

The internationalization of RMB actually began in the early 90s of last century, starting from the use of RMB in Vietnam and Laos.

First, allowing cross-border RMB settlement is not easy.

The real development was in 2008 as a means to combat the crisis, and at the same time provide the convenience of local currency settlement for the expanding trade and investment scale of Chinese enterprises.

I went to the central bank in 2009 and I was also one of the witnesses of the whole process.

It is not easy to launch cross border pilot projects, which used to be US dollar settlement for a long time, and a lot of systematic improvements should be made.

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It has been helped by several departments including the safe, the General Administration of customs and the State Administration of taxation.

At that time, we did not expect to internationalize the RMB. There is no big objective and clear road map. We just want to increase the cross border settlement of RMB, and only do cross-border trade.

In 2008, the total value of China's import and export trade was 2 trillion and 560 billion US dollars. We think that cross border RMB settlement can achieve 1% of the annual trade volume.

The subsequent development exceeded expectations. Cross border RMB settlement has achieved explosive growth, accounting for less than 1% of the cross border revenue and expenditure in 2009 and 28.7% in 2015, far exceeding our estimate of 10%.

Trade settlement actually helps enterprises to reduce.

Risk, reduce financing costs.

At that time, it was only a small target for cross-border settlement.

The use of RMB cross-border trade is the core and the foundation for promoting the internationalization of RMB.

Next, China continues to push forward the cross-border use of RMB under capital account, expand the scale of offshore RMB market, cross border currency swap, and gradually liberate the bond market.

RMB has also become the fifth largest payment currency in the world, and China's internationalization of RMB is gradually moving from trade to capital account. This is an interesting process.

In 2009, I originally predicted that China could only be formally incorporated into the SDR in 2019.

Our research shows that the lack of liquidity in the world is mainly reflected in the shortage of international currency.

In the absence of international currencies, dominant currencies are rising.

Why is there bad money drives out good money? In the case of insufficient liquidity, good money is stored because of good currency appreciation for bad currencies. It is manifested in good money being expelled, and in fact, good money has been collected.

Take the Japanese yen as an example, Japan's economy is stagnant, and Andouble's economics is basically failing.

In the absence of global liquidity, the renminbi is an international currency.

In the long run, if we are divorced from the real economy, we will appreciate.

The same is true in Japan.

Expanding the flexibility of RMB is the direction of long-term reform.

However, the appreciation of the dominant currencies has the possibility of long-term appreciation of the RMB. The longer we join the SDR, the stronger our international monetary attributes.

After adjusting to the international market, the renminbi will appreciate as much as the yen.

After China's entry into SDR, it will hedge against future downside risks.

In the future, China will face aging, and the rate of economic growth may not be as high as it is now.

If the currency is not an international currency, and the country's economic growth rate is low, the currency will depreciate, such as Brazil, Russia and other countries.

If money is an international currency, on the contrary, it will appreciate and disengage from the real economy.

So there is room for appreciation in the medium and long term.

Therefore, joining the SDR will hedge down the downward pressure of China's economy and the challenge of aging.

China's economy has experienced medium and high speed growth and medium speed growth. After decades, it may be a medium low speed growth. It has the effect of aging. By that time, as long as the renminbi is an international currency, the RMB will be stable and appreciating.

The value of the renminbi is stable and appreciating, and its purchasing power abroad is not compromised.

We have been eating WTO dividends for more than ten years. Joining the dividend of SDR, we will eat for the rest of our lives.

About two hundred countries in the world really need international currencies, most of which are 40.

The four former US dollar, euro, Japanese yen and pound sterling are historical heritage, only RMB is representative of emerging market countries.

Assuming the rise of India, I estimate that SDR basket will not exceed 8 currencies in the future.