Chapter 1 Internationalization Index of Renminbi

1.1 RMB internationalization index and its principles

1.1.1 Internationalization of the RMB

Currency internationalization refers to a sovereign currency performing functions of currency,being widely used by other countries in international trade,international capital flows and foreign exchange reserves.From a static view,currency internationalization describes the status and result of currency being used as an international currency,and from a dynamic view,currency internationalization involves the whole process of becoming an international currency.

According to the above definition of currency internationalization,we give the following definition of internationalization of the RMB.Internationalization of the RMB refers to the process of RMB performing functions of currency worldwide,becoming major pricing and settlement currency in trade,and becoming financial transaction currency and governments' international reserve currency.

From a historical perspective,there are some basic conditions for a country's currency to realize internationalization.For example,the real economy should maintain steady development,and play an important role in international trade and economy；there should be a higher level of domestic financial liberalization and international openness；and the basis of market system and macro economy which is helpful for currency internationalization should be established.Although the RMB initially has some conditions of internationalization,China still faces a long and arduous process to realize the ultimate goal.There is no doubt that internationalization of the RMB is a process of combination between natural market formation and government's policy guidance,a process full of gaming among various international forces,and a process of rising of China's political and economic soft powers.

1.1.2 The definition of RMB internationalization index

RMB internationalization index refers to the indicator and data that take global proportion of all functions of the RMB viewed as the international currency into consideration,which shows an objective,dynamic,and scientific description of the degree of internationalization of the RMB.

Internationalization of the RMB is our realistic choice of protecting national interests after the global financial crisis.Promote internationalization of the RMB means breaking the current pattern of international monetary system,sharing vested interests with existing international currencies,and bearing accompanied and unprecedented monetary regulation and risks of external shocks.In the process of internationalization of the RMB,how to accelerate China's economic growth pattern transformation under the premise of avoiding major crises is definitely an initial problem in government's macroeconomic management.Compile RMB internationalization index can comprehensively reflect the degree of internationalization of the RMB,and can also supply an ope—rational scientific tool and an efficient management way for government decision making sectors to accurately grasp dynamic process of internationalization of the RMB,helping them timely seize new opportunities and challenges from home and abroad during the process of internationalization of the RMB,and pointedly adjust or formulate macroeconomic policies.

1.1.3 The purpose of the compilation of RMB internationalizationindex

Firstly,base upon functions of currency,analyze current status and important determinants of internationalization of the RMB,and provide a comprehensive indicator system for government decision making sectors to scientifically evaluate the process of internationalization of the RMB.

Secondly,reflect the process of internationalization of the RMB objectively,conveniently,and dynamically,provide a reflection of the dynamic evolution of internationalization of the RMB to the globe,and then provide a new general measurable indicator for the research of internationalization of the RMB,filling the theoretical blank of the research in internationalization of the RMB.

Thirdly,comparative analysis of the internationalization index of the RMB and other major currencies can help understand the main factors that promote or hinder internationalization of the RMB from the structure,learn the gap between internationalization of the RMB and internationalization of other major currencies,find the principal contradiction and the prominent problems,and provide government with a convenient evaluation tool to analyze and review the achievement of internationalization of the RMB and the effectiveness of re—lative promoting measures,so as to help the government grasp opportunities in internationalization of the RMB in time,and formulate appropriate and targeted policies to advance internationalization of the RMB.

Fourthly,provide countries all over the world with a reference of currency selected to be used in trade and official reserves.Although internationalization of the RMB is a natural selection that goes with the tide of international economic situation after the global financial crisis,several countries are not willing to choose RMB as their official reserves due to lack of understanding of the international use of the RMB.RMB internationalization index can strengthen foreign governments and corporations' understanding of the degree of internationalization of RMB,and can provide them with a convenient decision making basis in choosing RMB as the settlement and reserve currency.