"One Currency, Two Markets: China's Attempt to Internationalize the Renminbi" (provisionally translated "One Currency, Two Markets: China's Attempt to Internationalize the Renminbi", hereinafter referred to as "One Currency, Two Markets") is a professor at the Department of Economics of Hong Kong University of Science and Technology, Li Linxiang, director of the Economic Development Research Center, wrote a book titled "Sharpening a Sword in Ten Years", but shortly after the book was released, he put the electronic version on the Internet for free viewing.
"It doesn't matter if you don't want to buy it." Lai Linxiang explained calmly. He hoped that more people would read this book and learn about the renminbi, the country and Hong Kong from it.
To this end, he has already started to prepare a Chinese translation.
Li Linxiang is one of the few "Hong Kong-made professors" in Hong Kong academia who focus on the study of the international monetary system.
Based in Hong Kong, his perspective on RMB internationalization is also very "Hong Kong".
In the book, he does not shy away from the problems faced by the country in its development, but he does not apply the Western stereotype to "find the coffin", but firmly believes that the country has its own unique model, or it will walk out of a different currency internationalization the way.
Li Linxiang, professor of the Department of Economics of the Hong Kong University of Science and Technology and director of the Economic Development Research Center, is one of the few "Hong Kong-made professors" in Hong Kong academia who focus on the study of the international monetary system.
(Data picture: Photo by Ou Jiale)
Data model deduces the future of "RMB internationalization"
"One Currency, Two Markets" includes an empirical study by Li Linxiang, which uses the "gravity model" (also known as the "trade gravity model", which is a theoretical hypothesis established by the "universal gravitation" formula to explain and predict human economic, social and political interactions and roles in geographic space), and deduce the proportion and ranking of RMB in international trade payments.
Li Linxiang introduced that he asked the Society for Worldwide Interbank Financial Telecommunication (SWIFT) for figures on bilateral payment flows in countries around the world from 2010 to 2017, "80 to 90 months, more than 200 countries, between settlement data”, and then try to find from the data the factors that affect the bilateral payment flow between the two countries.
"I'm very brave (very bold) to imagine what the flow of bilateral payments between RMB and other countries will be in 2030?" Through assumptions, deductions and verifications, Li Linxiang concluded that if China's capital account is more open If it can reach the level of Thailand in 2019, the renminbi will become the third largest payment currency in the world by 2030.
"Don't think that Thailand is not open. In fact, compared with China, Thailand is already very open!" Li Linxiang explained that in the study, the indicator formula to measure the degree of openness of the capital account is "the total of external assets and external liabilities divided by the national Gross domestic product (GDP)”, Thailand is 200%, that is, Thailand’s external assets and external liabilities are twice its GDP, but China is about 100%, that is, external assets and external liabilities are similar to GDP, “In simple terms Thailand is almost twice as open as China.” Lai added that Thailand still lags behind the world’s major economies, with the United States “three times”, while China is similar to Indonesia and slightly ahead of India.
Having said that, this "third" is also a "distant third".
Li Linxiang said that in the world monetary system, the "big brother" is the US dollar, which accounts for more than half of the payment share, and the euro accounts for less than 20%. %, while our forecast for the renminbi share is around 6%.”
"However, it is not easy for China to open up to the level of Thailand. According to my observation, it will even take a long time." Li Linxiang emphasized that the development of China's financial market is slow, and if it opens up too quickly, capital flight may occur.
The resistance to the development of the financial market is the vested interest in the national economic system, "especially the four major state-owned banks in China, Bank of China, Industrial and Commercial Bank of China, China Construction Bank, and Agricultural Bank of China. The four banks account for more than 50% of the market share. They need the government to keep their profits, so they will oppose reforms...but they also have legitimate reasons, such as state-owned banks to support state-owned enterprises (development), providing low-interest loans." And state-owned enterprises have economic functions in addition to their economic functions. , also has social and political functions, such as providing jobs and maintaining the important position of state-owned enterprises in the economic system.
"One Currency, Two Markets" includes an empirical study by Li Linxiang, which concluded that if China's capital openness reaches the level of Thailand's in 2019, the renminbi will become the world's third largest currency.
National finance may adopt a "reverse force" model to advance
Under the interlocking derivation, the "crux" in China's economic context emerges one by one.
However, unlike the Western questioning and criticism of China's economic model, Li Linxiang believes that the country will use its unique "reverse forcing" model to realize the reform and opening of the financial system: "Forcing the financial system to reform... . Financial market reform and capital opening will be mutually causal, interactive and synchronized.”
Li Linxiang analyzed that "renminbi internationalization" will become the reason for forcing vested interests to give up their interests, "The logic is that if the renminbi is to be internationalized, the capital account must be opened; and the prerequisite for opening the account is the development of the financial market, so The financial system and the banking system need to be reformed. If the banking system is market-oriented and interest rates are market-oriented, banks must improve their competitiveness and make capital allocation more efficient, so that funds will stay with you.”
Li Linxiang described the People's Bank of China, which he admires, as a "reformer" of the country's financial system. "For example, the interest rate liberalization has been done by the People's Bank of China, and it has not stopped. In the past, the interest rate of the RMB was strictly controlled, and the bank must follow It was enough, because at that time it was still a planned economy model. Now, loan interest rates have been liberalized a lot.”
Li gave an example. After Yi Gang, Governor of the People's Bank of China and Director of the Office of the Financial Stability and Development Committee of the State Council of China, took office, he imitated the Western Monetary Policy Transimission Mechanism - Prime Rate and established China's The operation of the market-based best lending rate has reformed the loan interest rate mechanism.
"The People's Bank of China hopes to learn from the Western model, and hopes that the central bank (through the market) can influence interest rates more directly and quickly. There were not so many market-oriented operations in China before, and the State Council set the benchmark deposit and loan interest rates, which have remained unchanged for several years." Li Linxiang said by comparison, "You think about it, the United States changes every six weeks, but China used to change every few years. So the current interest rate is basically determined by the People's Bank of China, which is very similar to the Western model."
Li Linxiang pointed out that the People's Bank of China is a "reformer" in the country's financial system.
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Offshore markets are not the ultimate driver
In Chapter 7 of "One Currency, Two Markets", Li Linxiang elaborated on the role of Hong Kong and other offshore markets in promoting the internationalization of the RMB. Since the country is still relatively backward in the financial market and the capital account has not been fully opened, it has Hong Kong, with developed financial infrastructure and relatively free capital flow, has played an irreplaceable role in the internationalization of the RMB.
He wrote: “The offshore renminbi market allows China to internationalize its currency without fully opening its capital account. At the same time, the offshore market also allows foreign holders of renminbi-denominated assets to remove currency risk from country risk. separation."
"China's special situation, the special situation of the RMB, the offshore market is particularly important for the internationalization of the RMB." Li Linxiang changed the topic. "However, the offshore market is not the ultimate driving force for the internationalization of the RMB." He added, The ultimate driving force for RMB internationalization is still the opening of the capital account and financial market in the onshore market. In addition, it is the size of China's GDP and the world's confidence in China's political and economic system.
"The first two are very important, otherwise the offshore market will not play a role at all." Li Linxiang, for example, in 2014, the country's economic growth slowed down, the internal growth factors were insufficient, capital outflows occurred in the second half of the year, and the renminbi depreciated; by 2015 In August, the country started the reform of the RMB exchange rate and implemented capital controls in the onshore market. "There is a problem in the offshore market in Hong Kong."
Li Linxiang concluded that the development and development of the offshore market is largely related to the financial development and capital account opening of the onshore market.
Of course, Hong Kong is not entirely passive.
As he pointed out, the Hong Kong Stock Exchange has made a lot of attempts, made suggestions, launched many RMB products, created an interconnected role, cooperated with mainland China, launched many RMB products, and even traded stocks at RMB prices.
Li Linxiang pointed out that the Hong Kong Stock Exchange has made a lot of attempts, made suggestions, launched many RMB products, created an interconnected role, cooperated with mainland China, launched many RMB products, and even traded stocks priced in RMB.
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