The 2016 International Monetary Forum · Parallel Forum Ⅰ-“Exchange Rate Reform and Risk Prevention after RMB’s Inclusion in the SDR Basket”
2016-07-24 IMI
Chou A-ding, former Vice President of the Central Bank of the Republic of China (Taiwan) and director of Taipei Foreign Exchange Market Development Foundation, delivered a speech on the topic of “Taiwan’s Experience of Exchange Rate Reform and Risk Prevention”. He introduced the three stages of the TWD’s exchange rate liberalization and how CBC (Taiwan) had regulated the foreign exchange market. He also gave a profound analysis on the potential risks of RMB’s inclusion in the SDR. He believed that after the capital account was opened, massive short-term capital flows would have the biggest influence on the exchange rate’s stability; the central parity of RMB against the U.S. dollar was not in line with the market situation and had caused anticipation; divergence in major countries’ monetary policies had led to an unstable foreign exchange market. He reinforced that to reform RMB exchange rate and open the capital account required gradual and progressive approaches to reduce potential risks. He pointed out that the transactional function of SDR needed to be strengthened to advance its status as an international reserve asset and to deepen international monetary system reform.
Alistair M. Michie, Secretary General of the British East Asia Council and Advisor of China State Administration for Foreign Experts Affairs, spoke on the topic of “RMB Internationalization and the Influence of Brexit”. He looked into the influence of Brexit and expressed his views on how China could reduce its reliancde on the U.S. dollar. He believed that China could turn this emerging crisis into a golden opportunity. He further suggested that the Chinese government should open up a new channel for communication with senior officials of the British government and the financial industry; and China should consider establishing a China-Britain Advisory Council to promote RMB internationalization.
Ding Zhijie, Assistant President of the University of International Business and Economics talked about “An Investigation into China’s Practice of Cross-border Capital Flow Management with the Perspective of the Impossible Trinity”. He held that RMB internationalization could help China’s capital become more acceptable in international societies, and that was why we promoted it with great effort. He stressed that for more stability of the global financial market, future international capital flows should be adjusted to meet the need of capital exporting countries, which the need of the importing countries should be subordinate to. Meanwhile, SDR’s role in the international monetary system should be enhanced so that it would become a real pricing currency.
Herbert Poenisch, former Senior Economist at the Bank for International Settlements lectured on the factors that had caused exchange rate fluctuations. He analyzed the status quo of the world’s foreign exchange markets in respects of market scale, participants, tools, maturity and geographical distribution of foreign exchange market centers. He also envisioned the 2016 international foreign exchange market.
Ding Jianping, Vice Dean of Shanghai Institute of International Finance Center and Director of the Research Center for Modern Finance Shanghai University of Finance and Economics, delivered a speech on “Future Exchange Rate Formation Mechanism after RMB’s Inclusion in the SDR”. He pointed out that after the inclusion, the relations between RMB and the other four currencies were important, and fluctuations in exchange rates should require references of the SDR basket and reflect China’s key economic indicators. He considered that China was in a transitional period where the old regime still existed and the new regime was not mature; fluctuations in exchange rates, the monetary policies, and the exchange rate system are current issues waiting to be resolved. After the inclusion, we should take initiative in controlling the exchange rate and choose a proper reference frame to avoid problems caused by merely referring to the basket.
Jaya Josie, head of the South Africa Human Sciences Research Council BRICS Research Center talked about “The Influence of RMB Internationalization on South Africa”. In his view, South Africa had heavy reliance on trade with China. Moreover, South Africa had a large trade deficit with China. So RMB internationalization would have great influence on South Africa’s current account. He thought that the international monetary order dominated by the U.S. dollar was changing, and RMB would play a more and more important role in international trade.
E Zhihuan, Head of economic research in Bank of China (Hong Kong) talked about “An Outlook on RMB Exchange Rate Reform after its Inclusion in the SDR”. She believed that RMB exchange rate had always been in the process of reform with progressive adjustments, and every reform was a step closer to a market-based exchange rate. Unlike the 2015 reform, this reform was aimed for RMB internationalization, which would be more coordinated with the choose of monetary policies; to choose an exchange rate formation mechanism and set an exchange rate would have profound influence on monetary policy space and RMB internationalization. So, this reform had more meaning and comprehensive impacts. She reinforced that the RMB exchange rate should be guided with references to both U.S. dollar and the basket. However, under particular circumstances, there should be preferences.
Nicholas Beale, Director of Sciteb etc, talked about his views on Brexit and RMB internationalization. He thought that although currently the British market was unsatisfactory, a powerful government and a free-floating exchange rate would help Britain get through this unsettling period. He suggested that a practical measure based on collaboration and information-sharing should be developed to diagnose and fend off systemic risks; meanwhile in-depth theoretical researches on complex systemic behaviors and prudent financial macro regulation should be carried out; a new model to assist the opening of the financial system should be established.
David Marsh, Managing Director of the OMFIF, although absent from the forum, sent his congratulations through a video clip. He also made a speech on the topic of “The Development of RMB as an International Reserve Currency and Transaction Currency. He believed that RMB internationalization was different from the internationalization of the U.S. dollar and British pound in that it was mostly a government decision rather than a result of the market; RMB’s inclusion in the SDR had both positive and negative influence, which meant that when designing future monetary policies, the Chinese government should also consider a policy’s spillover effect on a global scale. He proposed that to ensure the stability of RMB internationalization, China needed to increase the transparency and credibility of its financial market, expand the scope, and improve relevant laws and regulations. He believed that on the positive side RMB becoming an international reserve currency would bring China more convenience in international financing and advantages in geopolitics. He agreed with China on some necessary controls over its capital account to ensure financial stability. He spoke highly of China’s powerful and responsible moves in promoting RMB internationalization, and acknowledged China’s effort and achievements in adjusting the balance-of-payment current account in recent years. He showed great confidence in RMB becoming an international reserve currency.
After all the speeches, the scholars had further discussions on RMB exchange rate reform and its opportunities and risks.
