Internationalization of RMB --Rewards and Risks IV Astana Economic Forum May 4, 2011, Astana Songzuo Xiang Deputy Director, The International Monetary.

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Presentation transcript:

Internationalization of RMB --Rewards and Risks IV Astana Economic Forum May 4, 2011, Astana Songzuo Xiang Deputy Director, The International Monetary Institute (IMI) Renmin University of China Vice Chairman of Advisory Board, Official Monetary and Financial Institutions Forum (OMFIF)

I. Milestones of Internationalization of RMB II. Major Steps Forward III. Rewards or Benefits IV. Risks and Challenges

Milestones of Internationalization of RMB (1) RMB Trade Settlement Experiment in Five Cities (July 1, 2009) (2) Expanding RMB Settlement Experiment in More Than 20 Provinces and Cities( June 17, 2010). (3) By the end of 2010, RMB Settlement amounted to 550b Yuan. This year RMB trade settlement increases much faster. (4) By the end of March,2011, RMB Deposits in Hong Kong amounted to 450b Yuan. Forecast of 2011 would be 850b yuan.

(5) Offshore RMB Investment into China’s Inter-bank Bond Market (August 17, 2010) (6)Almost full convertibility of RMB and NTD( New Taiwan Dollar) in Fujian, Shanghai and Guangdong. (7) First Issue of RMB-denominated Equity in Hong Kong market (April 29,2011).

Major Steps Forward (1) Encouraging offshore market in HK (2) Encouraging offshore market in Shanghai ( financial center in the future) (3) Encouraging RMB trade settlement, particularly bilateral trade settlement. (4) Launch International Board of Shanghai Stock Exchange (5) Increasing RMB denominated Bonds issuance in HK and Shanghai market

(6) Promoting Forward and Futures Transactions in RMB (7) Encouraging Investment aboard by Chinese Companies and Individuals. (8) Fully RMB Convertibility in 3-5 Years (SDR issue) (9) Interest Rates Liberalization (10) Further Opening up of Financial sectors for Domestic and Foreign investors.

Rewards or Benefits (1) Correct global imbalance and reduce dependence on the Dollar. A. Trade settlement: fear of floating and fear of appreciation B. foreign reserve Investment : fear of appreciation C. Dollar Pricing, imported inflation and worsening of terms of trade.

(2) Prevent Impoverished Growing (3) Reducing Currency crisis or Financial Crisis risks from Currency Mismatch or “ Original Sin” (4) Promoting further opening up of domestic financial markets, like WTO has promoted opening up of domestic market.

Risks and Challenges (1) Short term: RMB Appreciation Speculation or Hedge Activities: more demand for RMB, much faster appreciation, much less trade surplus even deficits. (2) Long-term: Risks of Capital flights and Financial Crisis (3) Destroying State owned Banks’ Monopoly

(4) Destroying Chinese Growth Model (credit control or favorite credit policy for SOEs) (5)Intensive competition from foreign financial services. (6) Violate independence of monetary policy.

Conclusion: (1) in 2-3 years, RMB deposits in HK market will increase to more than 3 trillion Yuan. (2) Chinese government has determined to promote it. (3) There is increasing huge demand for RMB right now (4) RMB will play important role in regional trade and investment settlement in next decade.