The First RMB Liaison Network Forum: The Evolution of the Multicurrency Reserve System
2016-05-24 IMI
A wide range of representatives were invited to deliver speeches on the conference. Speakers included WEI Benhua (Former Deputy Administrator of the State Administration of Foreign Exchange), ZHANG Zhixiang (Former Director General of the International Department of People’s Bank of China), Robert Dohner (Senior Consultant for Asia and Deputy Assistant Secretary at the U.S. Department of the Treasury), XIAO Geng (Professor of Practice in Finance and Public Policy at School of Business and Faculty of Social Sciences of the University of Hong Kong), SUN Lujun (Director of Guoxin International Investment Co., Ltd.), CHEN Weidong (Deputy Executive Director of the International Finance Institute of Bank of China), BIAN Weihong (Deputy Research Fellow of the International Finance Institute of Bank of China)，GUO Meijun (Business Director of Cross-border RMB Business of China Construction Bank)，WAN Tailei (Director of the International Communication Department of the National Association of Financial Market Institutional Investors)，ZHAO Xijun (Associate Dean of the School of Finance of Renmin University of China), HE Qing (Associate Head of the School of Finance of Renmin University of China), XU Gao (Chief Economist of Everbright Securities)，XIA Le (Chief Economist for Asia at the Research Department of Banco Bilbao Vizcaya Argentaria)，Augusto Castro (Director of Trade at the Embassy of Brazil in China), Supradit Tangprasert (Chief Representative of Bank of Thailand in China)，Tsyplakov Sergrey (Chief Representative of the Beijing Office of Sberbank)，YoungWook Kim (the Beijing Office of Bank of Korea), PyungSeup Yang (Chief Representative of the Beijing Office of the KIEP)，ZHOU Qi (Representative of the Beiing Office of the Monetary Authority of Singapore)，Edward Lu Kean (Representative of the Beiing Office of the Central Bank Of Malaysia)，TU Yonghong (Deputy Director of IMI), and SONG Ke (Deputy Director of IMI).
The forum covered two major topics, with the first topic being The Evolution of the Multicurrency Reserve System. Director Chen Weidong delivered a keynote speech on The Rebalancing of the International Monetary System. He pointed out that in terms of the international institutional reform, we should aim to promote the stable and sustainable development of the world economy, establish the exchange rate arrangements that facilitate the efficiency and stable performance of the currency of each nation, and adopt effective measures when crisis occurrs to secure just, equitable, reasonable international coordination. Director Chen said that the gap between sizes of emerging economies and developed economies is being bridged, and emerging economies are playing increasingly important roles in world trade ties and the bilateral trade between countries. Encouraging qualified emerging economies to engage in the international monetary system will lay a more solid economic foundation for the system per se, contribute to more efficient monetary coordination, and strengthen the management of international monetary policy coordination and flexible international exchange rates. Therefore, while China is promoting the economic development and societal advancement, we should keep the exchange rate RMB at a relatively stable level and contribute to international liquidity through currency exchange agreements. Chen stressed that we should develop the future development path of the international monetary system based on the lessons and experiences drawn from the world economic development track and from major conflicts that occurred within this period; meanwhile, China's experiences and the engagement of RMB could also help us to figure out how to construct a more rational international monetary system.
Mr, Dohner pointed out in his speech that under the current backdrop of a multi-polarised international monetary system, the United States should support measures adopted by China in promoting the internationalization of RMB. He also hoped that China could enhance its financial system and develop a financial market of broad and profound liquidity level.
Administrator Wei is confident about the current economic growth rate of China and the movements of RMB value. He believed that although the Chinese economic growth rate per capita and the urbanization level remained low, the unbalanced development still existed, China still possesses great growth potential. The exchange rate of RMB is stable and even demonstrates a up-rising trend over the medium-to-long term, so China’s economy will not experience a hard landing.
Professor XIAO Geng pointed out in his speech that the volatility of RMB exchange rate, especially sharp depreciation, would trigger the concentration of capital outflows. He said that keeping the exchange rates between USD and RMB within a moderate range is of political cooperative significance. We should make good use of the SDR instrument to facilitate Sino-US collaboration while also optimizing the geographic advantage of Hong Kong and increasing the connectivity between HKD and SDR.
Dr. Xu analysed some of the unfavourable factors for RMB internationalisation. He suggested that the global foreign reserves were uneven with the United States taking up a large proportion. Meanwhile, while China’s domestic supply far exceeded the demand, we failed to turn excessive savings into domestic demand, and thus would face great difficulties in achieving a completely consumption-driven economy. He thought that the conditions were not yet mature for RMB internationalisation.
The second topic is The Future Development of RMB Internationalisation for the Capital Market. Director GUO Meijun thought that the internationalisation of RMB was more of an outcome than a procedure. After its overall rapid development, the RMB market gradually entered into the transitional phase to the capital market. The rapid internationalisation during this phase needs to be supported by the capital market, the advancement of which requires the global capital market integration. Therefore, promoting the integration between the Chinese and the offshore or the international capital market is the essential way for us to go. We should speed up expanding the scope and intensity of the RMB market, forge ahead with domestic financial reform, design and provide more RMB products for RMB holders in the market so as to mobilize people's willingness to hold RMB.
Professor He Qing looked into the conditions for promoting regional trade integration through RMB utilization. He thought that integration would be strengthened only when the RMB utilization rate exceeds 60%, otherwise negative influences would occur. Therefore, incorporating both India and Russia into The Belt and The Road Initiative impedes regional trade integration.
Deputy Director TU Yonghong attached special attention to the relationship between China’s supply side reform and RMB internationalization. She said that China’s economy now developed along a L-curve growth model, where the economic structural upgrading would take 10 to 15 years to accomplish. The lack of innovation, uneven economic structure, insufficient support for medium and small enterprises, and less competitive trade are the structural problems faced by China’s economy. The supply side reform could thus lay a permanent basis for the economic development. Meanwhile, RMB internationalization can also become a major driving force for the supply side reform, promote industrial upgrading, increase efficient supply, increase the efficiency of financial resources distribution, and establish a new supply model for commodities. She emphasized that the real economy is the corner stone for RMB internationalization, and RMB internationalization should also serve the real economy in return, so exchange rate fluctuations would not be undertaken to boost RMB internationalization. The development of the off-shore market should coordinate and co-develop with the development of China's real economy.
Director WAN Tailei said that the opening up of China’s bond market is closely related to RMB internationalization. He pointed out that the size and liquidity of China’s bond market has undergone significant progress, we should strengthen the infrastructure step by step, improve related laws and regulations, and speed up the design and issuance of new products. Meanwhile, the market regulation should also be strengthened to improve risk prevention and coordinate domestic and international compliances.
Dr. XIA Le identified the problems occurred in the RMB internationalization process. He said that the liberalization of interest rate should go first, and followed correspondingly by the liberalization of exchange rate and that of the capital market; which was appropriate order for the financial market. Now RMB internationalization has been placed forth, which led to faster backflows of offshore RMB, less foreign reserves, and public anxiety. Meanwhile, the currency exchange agreements that signed by the offshore market and the central bank with other countries pose downward pressure on RMB internationalization. He suggested that we should implement the RMB exchange rate reform prior to its internationalization and promote the liberalization of exchange rates.
In the round table discussion session, representatives exchanged views on issues such as the development of RMB internationalization and the exchange rate mechanism.
It is noted that the RMB Liaison Forum aims to construct a non-official safe channel of information to support GPIs in conducting practices related to RMB businesses and transactions, with special focus being given to enhance cooperation and information exchange, and representatives from the public sector being major participants. The work of RLN includes releasing information about the timeline and arrangement of trade and investment, covering the development of the liberalisation of China’s capital account, comprehensive macro-economic data, exchanges of views in RMB cross-border trade application, investments and capital market transactions, and information upgrading of settlements.
