New Challenges and Opportunities for Renminbi Internationalization
Since the COVID-19 pandemic in 2020，the developed economies have launched quantitative easing policy and triggered global monetary adjustments. The most obvious change is the steady improvement of the renminbi internationalization. Recently，the Federal Reserve announced plans to start reducing its monthly purchases. There are still uncertainties in global epidemic prevention and control. New changes appear in the international political and economic situation. Domestic economic and financial operation also faces multiple risks and challenges. However，China's economic fundamentals remain stable and its global position has been further improved in recent years. The renminbi exchange rate elasticity has been significantly enhanced. The financial opening has been improved，with more attractiveness of the domestic market and renminbi assets. The counter-cyclical adjustment ability of foreign exchange administration departments has been continuously improved. These changes have brought new challenges and opportunities to the renminbi internationalization.
New challenges
The shift of the Fed's monetary policy will have an impact on the renminbi exchange rate and the cross-border capital flows. The Federal Reserve is expected to start Taper in late November to reduce the scale of asset purchase at a pace of US$15 billion per month，including US$10 billion treasury bonds and US$5 billion mortgage-backed securities (MBS) respectively，and completely end the bond purchase plan in mid-2022. Historically，the shift of the Fed's monetary policy may have a "shrinking impact" on the global economy. On one hand，the bubbles in US stock market and the real estate market are close to the historical high point. Once the Federal Reserve tightens market liquidity，it may prick the asset bubbles. This will trigger a global dollar liquidity panic and lead to the return of capital from emerging economies to the United States. On the other hand，the tightening of US dollar liquidity may also trigger the balance of payments crisis in emerging economies which may spread rapidly around the world. The above changes may trigger China's cross-border capital outflow，lead to significant fluctuations in the renminbi exchange rate and reduce the attractiveness of renminbi assets.
The uncertainty of global epidemic prevention and control may have an impact on China's exports and economic fundamentals. In the first three quarters of 2021，China's foreign trade，exports and imports increased by 22.7%，22.7% and 22.6% respectively year-on-year，the highest level in 10 years，which forms a stable support for economic growth. In particular，the export growth rate reached 28.1% in September 2021，exceeding market expectations for two consecutive months，which reflects the continuous global demand for Chinese goods. The continuation of export growth can effectively support the renminbi. However，the recurrence of the epidemic may bring devaluation pressure on the renminbi in the long run. At present，the overseas epidemic prevention and control is relatively relaxed. With the promotion of vaccination，the harmfulness of the epidemic has been greatly reduced. In the future，developed economies may substantially liberalize epidemic prevention and control through mutual recognition of vaccine passport，to achieve normalization and coexistence. In this context，if China continues to maintain normal epidemic prevention and control，it will have an impact on trade and investment. This will result in the "dividend" of epidemic prevention and control in the early stage becoming the "cost"，and a negative impact on the renminbi exchange rate.
The Sino-US relations show signs of easing in the short term，but the US policy of suppressing China's economy and finance will not change in the long term. After Biden came to power，he introduced a series of China-related bills，positioned China as the number one competitor，and tried to contain China in all aspects in the political，economic，military，and other fields. On October 18，the U.S. Treasury Department issued an evaluation report on the economic and financial sanctions it has implemented in recent 20 years. It proposed that they should clarify the policy objectives of sanctions in the future. They will upgrade the sanctions from five major aspects，including multilateral cooperation implementation，the reduction of unexpected impact in economic，political，and humanitarian aspects，easy understanding of sanctions，sanctions technology investment，and the modernization of labor force and infrastructure. In the future，we will face greater challenges in dealing with US economic and financial sanctions. In addition，Schumer，the majority leader of the US Senate，said on November 14 that the Senate would vote on the National Defense Authorization Act for Fiscal Year 2022 soon，and the United States Innovation and Competition Act of 2021 previously passed by the Senate would be incorporated into the National Defense Authorization Act for Fiscal Year 2022. The United States Innovation and Competition Act of 2021 contains five China-related bills，including the Strategic Competition Act of 2021 and the Endless Frontier Act. It is a highly detailed competition strategy aimed at China.
New Opportunities
The exchange rate flexibility of renminbi has been significantly enhanced. More market players tend to choose to use renminbi in cross-border trade and investment. With the two-way opening up of the financial market，the formation mechanism of renminbi exchange rate has been continuously optimized and the degree of marketization of renminbi exchange rate has been continuously improved. Since the "August 11" foreign exchange reform in 2015，the renminbi has gradually becoming a mature currency with increasingly transparent and market-oriented central parity pricing mechanism. From the perspective of renminbi's weight in Special Drawing Rights (SDR)，the deviation degree of the weight of currencies in SDR basket from the initial weight reflects the strength change of the currency compared with other basket currencies. Since the second half of 2018， influenced by the Sino-US trade frictions and the COVID-19 epidemic，the renminbi has been more than 0.6 percentage points lower than the initial weight. However，the downward trend did not lead to