The Progress of RMB Internationalization

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Since the initiation of RMB cross-border trade settlement in July 2009， the internationalization of RMB has been going on for four years. In the past four years， the size of RMB cross-border trade settlement kept increasing； the offshore trade centers were gradually formed； and the backflow channels were further enhanced.

All these show that the internationalization of RMB has got periodic progress. Compared with several years ago， when merchants engaged in trade between China and Vietnam had to rely on the “booth bank” to exchange the currencies， the current situation is much better and more exciting beyond those men’s imaginations.

The rmb internationalization with Chinese characteristics

In some Vietnamese and Chinese cities sitting on the border of China and Vietnam， people used to see such a sense： in the port and trade points， a group of women wearing bamboomade hats and taking handkerchiefs sat or stood by the road， two or three together. They held a bundle of RMB and Vietnamese dong and kept shout- ing to passers-by： “need to exchange the money？”

This is the famous “booth bank” at the border between China and Vietnam.

Dung Lahm-young， a businesswoman from Vietnam， has a store selling agricultural products from Vietnam in Dongxing， a Chinese city sitting close to her hometown. Her store is located in the specific trade area the local government assigned for the trade between Chinese and Vietnamese. Speaking of the cross-border trade settlement， she says that she used to go through the official pattern by waiting in the bank for several hours to have the money exchanged or go to the “booth bank”to finish the currency exchange in an instant.

“For the sake of convenience， many people chose the latter，” she says.

“In our specific trade area， the daily deal volume could be beyond RMB 10 million，” says Yao Qiwei， Deputy Director of Dongxing Border Trade Bureau. In the past， the transaction of RMB settlement in the trade area needed to go through a lot of examinations， which took a lot of time. In comparison， the“booth bank” run by Vietnamese women was very easy for the RMB trade settlement as a phone call could make everything in a few minutes.

The convenience greatly improved the “booth bank”， which even started a lot of additional businesses. Apart from exchanging the currencies， it also provided payment on commission， interim fundraising and trade guarantee.

However， there were great risks in the “booth bank” despite the convenience. Pan Yong， Director of the Business School at Guangxi University says that the lack of regulatory measures decides that customers might easily fall into traps of “booth bank” when dealing with them. In addition， those “small and scattered banks made of flesh and blood” created a lot more difficulties for the anti-laundering and foreign exchange management in the border area.

From “booth bank” to investment currency

Nowadays the “booth bank” in the border area between Guangxi and Vietnam has already been a part of the history. On July 10， the branch of People’s Bank of China in Nanning， Guangxi， published the “Management Methods of RMB Cross-border Private Trade Settlement in the Border Area of Guangxi”， which established Dongxing as the second area allowing the private trades to be settled with RMB in China after Yiwu， Zhejiang.

The end of “booth banks” is only a small part of the internationalization of RMB. Since 2009 when the internationalization has officially begun， RMB has already jumped from the “local currency with narrow use” to the “regional currency that can be used in more than mainland China”.

The proportion of cross-border trades settled with RMB has been greatly increased and RMB is accepted by an increasingly larger area. According to the data， in the first quarter of 2013， the volume of RMB cross-border trade settlement has increased to RMB 1.0039 trillion， up 73%.

Meanwhile， Hong Kong， London， Singapore， Chicago and Taiwan are contending for the role as the RMB offshore settlement center. The backflow channel of RMB is under faster construction. Presently， the volume of FDI settled with RMB takes as much as 40% of the total FDI volume in China. In 2011， the proportion was only 12%.

Magnus Bocker， CEO of Singapore Exchange Limited， says that the internationalization of RMB is divided into three periods respectively of the trade settlement， the financial investment and the international reservation. At present， RMB is the in the phase of becoming the currency used in the international trade and is going to march into the period of financial investment.

ASEAN is the first destination of RMB internationalization and plays an important role in the process. In the 5th China-ASEAN Financial Cooperation & Development Summit held on September 4， Yi Gang， Vice President of People’s Bank of China and Director of the State Administration of Foreign Exchanges， said in the meeting that the volume of trade settled with RMB between China and ASEAN amounted to RMB 1120 billion. The size is increasing year by year and now China has realized the direct trade of currencies with Malaysia and Thailand.

The next stop of RMB internationalization

In the four years’ internationalization， RMB flows out of China through crossborder trade settlement and into an overseas capital pool with a certain size. The space for the longitudinal development of RMB internationalization has been opened， during which ASEAN is once again expected to play an important role.

Zong Liang， Deputy Director of the Financial Research Institute at Bank of China， says that ASEAN will be an important area for the internationalization of RMB in the future. Based on the international experiences， the internationalization of a currency will encounter lower risk of appreciation and depre- ciation be there in-depth cooperation in the neighboring areas. In addition， RMB has two advantages in its development in ASEAN： 1）， Southeast Asia is where most overseas Chinese live and RMB is easier to be accepted there； and 2）， most of ASEAN countries have trade surplus with China， paving the way for the outflow of RMB.

In recent years， the increasing trade between China and ASEAN is thought to be an important foundation for the “further progress”of RMB internationalization in ASEAN. In 2012， the trade volume between China and ASEAN in 2012 increased to US$ 400.093 billion. China has been the largest trade partner of ASEAN for four years in a row， while ASEAN keeps the title as the third largest trade partner for China. ASEAN is more and more dependent on the trade with China as the proportion increased from 12% at the beginning of 2008 to 20.6% in 2013.

Cao Tong， Vice President of CITIC Bank， says that the tight trade connections between China and ASEAN keep increasing， making the way for the increasingly consummation and maturation of RMB’s international business. The conditions for RMB to become the leading currency in the trade and financial cooperation in Southeast Asia have already been ripe.

“China should capitalize on this opportunity to push RMB to the position as the leading currency in the foreign trade of Southeast Asia and to accelerate the internationalization of RMB，”Cao Tong says.