Since China's pilot scheme for renminbi (RMB) cross-border settlement was launched in 2009, it has become increasingly important for monetary authorities in terms of macroeconomic policy frameworks. Using an analytical model that includes monetary supply and demand, the authors examine the influences of RMB cross-border settlement on China's domestic interest rate, asset price and foreign exchange reserves. They examine the differing ways that RMB settlement behaves with the various items in China's balance of payments, such as imports, exports, foreign direct investment, overseas direct investment, RMB Qualified Foreign Institutional Investor, RMB Qualified Domestic Institutional Investor and cross-border loans. RMB settlement in different items was found to lead to differing effects on China's economy. The authors address various aspects of China's macroeconomic policy, identifying opportunities and risks, and making recommendations for stable growth without negative by-products.
The Influence of RMB Internationalization on the Chinese Economy: Theory and Policy
CIGI Paper No. 58