From Digital Yuan to Renminbi Internationalization
E-CNY has been achieving great progress and introduced into testing scenario. It’s expected that e-CNY can be contributed to expanding the renminbi internationalization by scholars. However，the internationalization is a natural process as with the growth of China economy. We believe that as a cutting-edge technology，digital yuan does not substantially change this path，but it turns out to play an important role.
Since the outbreak of COVID-19，the United States has implemented the unprecedented dovish fiscal and monetary policies，and the global concern about the purchasing power of the US dollar has been surging. To hedge the inflationary risks，virtual encryption currencies like Bitcoin and Ethereum have been invented and attracting worldwide attention. As the representative of the digital fiat currency，the research and development of the digital yuan，or e-CNY，has been continuously accelerating during the past years. These are the new phenomena in the world monetary system. In the recent discussion，digital yuan is often associated with the renminbi internationalization by the academic researchers. In this paper，we investigate how the digital yuan help prompt renminbi internationalization. We first review the evolution of the international monetary system and the characteristics of digital yuan，and argue that the renminbi internationalization is a natural process，in which the renminbi will expand as the improvement of China's economic power. As a cutting-edge technology，digital yuan does not substantially change this path，but it turns out to play an important role.
Evolution of international monetary system
The first stage of the international monetary system is the gold exchange standard. With the globalization process initiated by the steam engine revolution，the cotton textile industry ignited the fire of trading globalization. North America，South Asia and North Africa exported raw cotton to Britain，and Britain exported cotton manufactured products to the rest of the world，thus Britain became the trade overlord. It directly requested its trading partners to open a sterling settlement account in London，and thanks to the large-scale industrialized production and division of labor for the first time，this thereafter turned into a monetary system. Since then，the merchants from the Dutch had to do currency exchange and deposited sterling for the exchange. More than one hundred years later，with the huge stock of gold mined in South America in Age of Exploration，Britain could sustain the gold standard for a long time without worrying about the shortage of gold supply. Although silver was also used for circulation in some regions，the stability of value is not as good as the gold due to the characteristics of higher output and multi-use.
With the rapid expansion of Second Industrial Revolution，the United States replaced Britain as the world's largest industrial and trading country. After the World War I，the United States gradually carried out the US dollar internationalization，mainly by extending the use of the US dollar in trade settlement. During the World War II，the proportion of the US dollar in global trade settlement had exceeded the pound sterling. After that，the United States established the Bretton Woods system. Under the system，gold was the basis for the U.S. dollar and other currencies were pegged to the U.S. dollar. In 1971，concerned that the U.S. gold supply was no longer adequate to cover the number of dollars in circulation，then President Richard Nixon devalued the U.S. dollar relative to gold. After a run on gold reserve，he declared a temporary suspension of the dollar's convertibility into gold，and the system collapsed.
The second stage is the fiat currency system backed by the government credit. The collapse of the Bretton Woods system did not affect the United States as the most powerful economy in the world. The United States continued to foster the US dollar hegemony through international trade and cross-border investment. In this era，a new global monetary system with the US dollar as the core and supplemented by the currencies of developed countries such as Yen，Sterling and Euro emerged and thrived. The US dollar builds an "internal cycle". Inside the cycle，free currency exchange among developed allies are fully allowed and protected. Outside the cycle，there is ostensibly free convertibility between USD and other currencies，but do not promise the liquidity security. By the prosperous achievements in the monetary economics，the Federal Reserve could implement the flexible and innovative monetary policies such as Taylor rule and forward-looking guidance. These new tools have completely switch the traditional US dollar supply from the gold stock to the government credit. The gold value is no longer the unique anchor to determine the currency value. In particular，with the expansion of global value chain，like horizontal and vertical industrial division，the US dollar capital had been exported to all over the world，the US dollar assets have become the core allocation option for foreign exchange reserves，and the US dollar settlement and custody system has become the infrastructure that is difficult to bypass in the global investment.
With the substantial changes in the global economic pattern，the "only super power and multi-great power" has gradually turned to multi - polarization. In particular，the growth of China and the process of EU integration have greatly changed the balance in the world. Although the core position of the US dollar as an international currency has not been substantially undermined，it has gradually weakened in terms of its market share. According to IMF，the proportion of foreign exchange reserves denominated in US dollars has dropped to 60% in 2021，the lowest in nearly 25 years.
The US dollar system remains a key force in shaping the world economy. Over the past century，although there have been calls for "de-dollarization"，and the shares of the US dollar in world foreign exchange reserves and cross-border financing have continued to decline，there is no other fiat currency that could completely defeat the US dollar. According to the Fed，the amount of US dollars issued and circulated worldwide is about US$ 2 trillion，and more than 50% are circulated outside the United States. In the foreign exchange market，according to BIS survey，among the top ten currency exchange couples with the most frequent transactions in the world，there are nine currency exchange couples involving the US dollar. The transactions of currency exchange couples of euro and the US dollar，and Japanese Yen and the US dollar account for more than 50% in the market. The proportion of transactions denominated in USD in global trade is still as high as 85%. The traditional FX path，known as "domestic currency - US dollar - foreign currency"，is the prior payment choice for most countries to carry out cross-border trade and investment. This confirms the status quo that the sectors participating the internationalization trade still has a strong path dependence on the US dollar. On the other hand，as a global sovereign currency，the US dollar as a typical fiat currency is difficult to perfectly solve the Triffin Dilemma，and it is easy to have the negative spillover effect globally. Historically，it had been suggested to use multilateral basket of fiat currencies to build the main reserve assets，such as the Special Drawing Rights (SDRs) created by the International Monetary Fund for member countries. Based on the agreement，SDRs are units of account for the IMF，and not a currency per se. They represent a claim to currencies of member countries for which they may be exchanged. This can be confirmed as announced by IMF "The SDR is neither a currency nor a claim on the IMF. Rather，it is a potential claim on the freely usable currencies of IMF members. SDRs can be exchanged for these currencies". That is，the value of SDR is determined based on a basket of currencies，and it indicates that SDR is conducive to building a more diversified and fair international monetary system but still lacks global liquidity，leaving little room for trading and hedging. In a nutshell，the SDR is still mainly used in official fields such as international financial institutions and sovereign countries，and has not been applied in the private field.
New changes in the international monetary system
Since 2009，there have been two new changes in the international monetary system. One is the introduction of the renminbi internationalization by China. The other is the rise of virtual currency (also referred as crypto currency or crypto in short，mainly due to its tight linkage with cryptography). Virtual currency can be divided into centralized and decentralized. The representative of the centralized is Libra released by Facebook in 2019. It tries to become a stable encrypted digital currency by pegging to a basket of physical currencies and sovereign assets，so as to solve the problem of cross-border settlement. The representative of the decentralized crypto is Bitcoin，which was born in 2009. It’s operated by conducting calculation by computers running continuously in the Bitcoin network，and recording credible information into the network irrevocably and anonymously. This is achieved via a unique encryption process without any centralized bureau. The vigilance by regulatory authorities arise and international organizations begin to concern，because once one widely recognized virtual currency is accepted as an international currency，the global international monetary system will no longer accurately reflect the operation information of the real and financial economy，and the existing supervision of centralized political institutions will fail. In 2020，Facebook made a compromise and anchored the Libra to a single fiat currency (yes，it is the US dollar)，further strengthening the dominant position of the US dollar. Meanwhile，the decentralized virtual currency grew savagely and gave birth to new crypto such as Ethereum. Some asset management companies add virtual currency to the pool of asset allocation.
The other change is the renminbi internationalization. Since the launch of the renminbi inter