Student No: 2011532943
Internationalization of RMB: The impacts on China and Its Trading Partners.
After the thirty years of great economic reforms, imposed in 1978, China has been showing an incredible results and performance. Due to the suitable economic conditions such as cheap labor force and low domestic currency’s (RMB) exchange rate, China has become the largest manufacturer of goods and receiver of foreign direct investments, the majority of which has been in manufacturing industry. And today China has totally changed from the poor agricultural country to the world’s arising economic power state. So with the rise of Chinese economy, its deep integration and significant influence in the world market and at the same time with the instability of euro area and in international monetary system in a whole, the issue of RMB internationalization and China’s exchange rate policy has become of huge importance to the world. So in this essay I will briefly analyze the characteristics of the international currencies, their benefits and costs, and then I will explain China’s interest and steps toward the RMB internationalization and will mainly focus on its impacts on China and its partners. The term of international currency has defined characteristics so that a currency can be considered international if it is used outside the issuing country for the transactions between other foreign states (Investopedia). And according to Chinn and Frankel (2008) (as cited in Lee, 2010) there are four criteria to determine “international currency status”: 1) Large enough size of country’s trade and output; 2) Liberal developed financial market;
3) Stable currency exchange rate;
4) High level of demand of the currency.
Moreover, Kenen(1983) and Chinn&Frankel(2005) (as cited in Haihong Gao & Yongding Yu) stated that the international currency has several...