How to Promote Renminbi Internationalization in a Steady...
Title: How to Promote Renminbi Internationalization in a Steady and Prudent Manner in the New Era
The IMF added the Chinese renminbi to the basket of currencies that make up the Special Drawing Right with a weight of 10.92 percent on October 1，2016，ranking right after the U.S. dollar and the Euro. Ms. Christine Lagarde，the then president of the International Monetary Fund (IMF)，stated that "Incorporating the renminbi into the SDR basket is an important milestone of the integration of Chinese economy into the global financial system and is also a recognition of the progress that the Chinese authorities have made in the past years in reforming China's monetary and financial systems." As the inclusion of the renminbi into the SDR basket marks its fifth anniversary，it is of great significance to review the development course of renminbi internationalization and study the strategies and policy measures for steady and prudent promotion of the course.
Review of the Renminbi Internationalization
If we leaving aside the sporadic use of the renminbi in border trades around 2000，the pilot reform of renminbi settlement in cross-border trade initiated in July 2009 shall then be considered the start of renminbi internationalization. We’ve encountered twists and turns during the past twelve years，yet the development course was rapid on the whole，which has drawn a wider attention across the globe.
Generally，the process of renminbi internationalization can be divided into three stages under the influence of various factors including economic growth and foreign trade fundamentals，trade settlement policy adjustments，renminbi exchange rate fluctuations，accelerated capital account opening，inclusion of renminbi into the SDR basket and continued integration into governance of global finance. Overall，it shows a positive development trend with fluctuations. The first stage was the start-up and fast development stage (2009 - 2014). Since the course almost started from scratch，the pilot reform of renminbi settlement in cross-border trade has achieved prominent effect. Coupled with clear appreciation momentum of renminbi，acceleration of capital account opening and other factors，renminbi internationalization has gained rapid development during this stage. Only within five years，by 2014，there is 25% of China's cross-border trade was settled in renminbi. Meanwhile，the offshore renminbi deposits exceeded 1 trillion yuan in Hong Kong，and reached 2 trillion yuan on the global scale. The next stage featured with adjustment and steady development (2015 - 2017). Affected by the market volatility caused by the 8.11 exchange rate reform，the depreciation trend of renminbi and the slowing down of capital account opening，the situation of adjustment and steady development of renminbi internationalization appeared，both the renminbi deposits in Hong Kong offshore market and renminbi settlement amount in cross-border trade have experienced certain adjustments. The third stage was the recovery and sustainable development stage (2018 to the present). Since 2018，China's financial sector has picked up its opening pace with the launch of Shenzhen-Hong Kong Stock Connect，Shanghai-Hong Kong Stock Connect and the Bond Connect，the elimination of quota limit on Qualified Foreign Institutional Investors (QFII) and RMB Qualified Foreign Institutional Investors (RQFII)，and the relaxation and final elimination of caps on foreign ownership of China's financial institutions. At the same time，renminbi resumed its steady and upward trend. After the outbreak of the COVID-19 pandemic，the widening of interest rate gap between China and other countries has led to an increased foreign securities capital inflow. International monetary and financial cooperation were also strengthened. Against such background，renminbi internationalization re-enters a fast development stage.
In short，the renminbi internationalization has achieved remarkable results after a decade's development. Data from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) shows that renminbi ranked fifth among the major international payment currencies in June 2021，and the renminbi payments accounted for 2.5% of all currency payments. In the first quarter of 2021，the renminbi ranked fifth in the Currency Composition of Official Foreign Exchange Reserves (COFER) of IMF，accounting for 2.5% of global foreign exchange reserves. Moreover，the renminbi emerges as a medium of exchange，an evaluation tool and a store of value to some degree in an international context，symbolizing the opening of our financial sector and the rising of our international financial status.
Nevertheless，we should be aware that renminbi internationalization remains at a relatively early stage. As an international payment currency，international financing currency，foreign exchange trading currency and official reserve currency，renminbi's proportion is still much lower than that of the U.S. dollar and the Euro. There is still a long way to go before renminbi can become an international currency with a significant impact on the international economic and financial system.
Thoughts on Steady and Prudent Advancement of Renminbi Internationalization
Theory and practice over the past decade have shown that renminbi internationalization has，to a certain degree，promoted domestic enterprises and financial institutions in reducing exchange rate risks，lowering overseas financing costs，and facilitated domestic banks in promoting international business strategies. From a long term perspective，the renminbi internationalization will have a significant impact on improving the flexibility of China's macroeconomic policy，changing the status quo of the unreasonable international monetary system，and enhancing the role and status of renminbi in the global financial system. Without doubt，along with the internationalization of renminbi，China shall shoulder more international responsibilities in global currency，financial and economic affairs，and provide more public products in opening up its domestic market and promoting global financial stability. However，during the process of pursuing higher degree of renminbi internationalization，we may again encounter twists and turns or even stagnancy if there is a misjudgment of timing，policy error，or unfavorable international economic and financial situation.
In the Outline of the 14th Five-Year Plan (2021-2025) for National Economic and Social Development and the Long-Range Objectives Through the Year 2035 approved during the Two Sessions，the Central Committee of the CPC for the first time clearly puts forward the strategic goal of promoting renminbi internationalization in a steady and prudent manner. This not only affirms the policies and practices of renminbi internationalization implemented during the past decades，but also points out the direction and defines the principle for how to further promote the course. In a word，we must promote，but with steadiness and prudence，which means to promote renminbi internationalization unde