The Effect of Rmb Internationalization

Topics: Central bank, Bretton Woods system, United States dollar Pages: 4 (967 words) Published: November 24, 2011
Effects on China

Advantages :

Enterprises in China
Enterprises in China may benefit a lot from the internationalization of Renmibi. First of all, the cost of currency exchange can be saved and the risk of exchange rate of using of other currencies can be reduced, if Renminbi become a trade settlement. Also, RMB as an investment currency, if foreign assets increased demand of it ,China can reduce the interest rates of RMB assets, thereby reducing their financing costs, and further, companies can go overseas to issue RMB-denominated bonds, thereby expanding the scope of financing and address the problem of currency mismatch. Furthermore, Domestic firms can use the RMB to invest abroad, to achieve Chinese enterprises "going out" strategy, integrating into the global economy.

People’s Republic of China
China may have quite a lot of advantages from it too. First, it may enhance the international status of China through internationalization of Renminbi by increasing China's voice in the international community and the influence of China in international economy, as the internationalization of its currency may promote the expansion of China’s financial service sector.

Also, China may collect ‘ seigniorage’from the rest of world, which ‘ seigniorage’ defined as the margin between the denomination of the notes and the cost of issuing the notes obtained by the note issuer, if RMB get commodity pricing, which can use it to buy the worldwide resources and avoid U.S. dollar liquidity constraints, that leads to expansion of seigniorage revenue.

More, China has accumulated foreign exchange reserves to ease the pressure, reduce the risk of reserve assets shrink, reducing the dependence of other countries (mainly U.S.). China's foreign exchange reserves, mostly are U.S. government bonds, which makes China and U.S. in a delicate state. After global financial crisis , the Chinese foreign exchange reserves shrink every moments, but China is not found in...
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