As the largest reserve currency in the world, the US dollar has brought many benefits to American traders and financiers. Using US dollars for international payment enables them to avoid the interference of exchange rate changes on the circulation of goods and funds. In addition, the dollar's status also allows the United States to benefit from other countries, The New York Times columnist Thomas? Friedman once wrote:
"The United States has a rare advantage in other countries: can you print George? Washington, Benjamin? Franklin and Thomas? Jefferson's head on green paper These papers are called "dollars". Americans use these "green books" to exchange goods and services with other countries, such as cars, pasta, stereos, taxis and hotel accommodation. As long as foreigners continue to be tempted to hold dollars, whether they put dollars in mattresses, banks or circulation, the United States can continue to exchange green books for real goods. "
Another advantage of the US dollar as a reserve currency is that it gives the US government an "excessive privilege"-as long as foreigners want to hold US dollar assets, the US government can raise funds to fill the deficit in a cheaper way. This right is particularly beneficial in times of financial crisis, because a large amount of funds are withdrawn from most countries and flow to reserve currency countries, thus avoiding the fatal blow of the crisis. Of course, this right is considered "excessive" because the United States needs to maintain budget and current account deficits so that other countries can buy dollars.
In short, the status of reserve currency is a symbol of American hegemony, and even many transnational crimes are traded in dollars. The dominant position of the dollar has also caused condemnation from other countries. Former US Treasury Secretary John? Connery was blunt in front of European finance ministers: "Our dollar, your trouble." The dominant position of the US dollar, like that of the British pound before, was obtained by virtue of the host country becoming the largest and richest economy and the largest trading country in the world. At the same time, the United States is in a favorable position in the global financial system. These factors make the dollar attractive to foreign investors.
2020: RMB replaces USD.
History tells us that what we get will be lost. I predicted that around 2020, after nearly 100 years of rule, the status of the US dollar will be replaced by the RMB. Skeptics will scoff at this bold speculation and think that this judgment is only contrary to historical experience in time. Historical experience shows that the acceptance of a country's currency on a global scale often lags behind its time to gain a dominant position in the economy. Therefore, the time for RMB to become a reserve currency should be postponed. For example, around 1870, the American economy surpassed Britain to become the world's number one, and the US dollar replaced the British pound during World War II (around 1940). This example shows that there will be a lag period of about 70 years between economic dominance and monetary dominance.
But the above explanation of history is wrong. Compared with the time generally believed, Britain actually lost its economic dominance later, while the pound lost its dominant position earlier. The influence of economic dominance on monetary dominance is not only related to economic scale, but also related to the country's trade and foreign financial strength. From this perspective, the time when the United States overtook Britain was not in 1870, but during World War I. In fact, until 1920, Britain was the largest exporter and investor in the world.
The dollar became the dominant currency in the mid-1920s. If some special political factors do not support the pound, the dollar will continue its dominant position from then on. At that time, the British government decided to strengthen economic ties between colonies and implement trade preferences and monetary union. This series of policies made the British colonies continue to use the pound instead of immediately turning to the dollar. Therefore, the time lag between economic dominance and monetary dominance is not 70 years, and it is more likely to be around 10 years.
At present, China has risen and is catching up with the United States. Measured by purchasing power, China's economy can already rival that of the United States. China's manufacturing exports are greater than those of the United States. In addition, China is a net creditor, while the United States is a net debtor. According to the conclusion just drawn, the substitution of RMB against USD will take place within 10 years. In other words, the strong rise of China's economy has created conditions for RMB to become the dominant currency soon. In 2020, the actual purchasing power of China will exceed that of the United States by about 40%. China's trade will also exceed the same scope. By then, China will still be a creditor country. According to the current inference, unless the United States can solve the medium-term financial problems, the United States will remain a fragile debtor country by then.
Resistance and motivation of reform
Now, all kinds of assets in China are attractive to foreign investors, but it is almost impossible for them to buy RMB-denominated assets. To make RMB a reserve currency, China needs to create a corresponding policy and market environment, but the preparation in this respect is far from enough.
At present, China's financial system is dominated by the government and lacks the transparency to win the trust of investors. In addition, the financial market does not provide enough liquidity for investors to exchange money quickly. In this case, how can foreign governments and private individuals be willing to pay, hold assets or settle accounts in RMB? In addition, in the current relatively closed financial system, a large number of vested interests hinder the financial opening, making the arrival of change more distant. Keeping the RMB undervalued is beneficial to the export sector, and exporters have become an important opposition force to currency reform. Banks and state-owned enterprises are also beneficiaries of cheap credit and will also oppose reform attempts that weaken their privileges. The ownership reform of banks and the marketization of their operations are the premise for RMB to become a reserve currency, and also an important means to break vested interests and privileges. Without reform, it is only an illusion that RMB will become a reserve currency or even replace the US dollar in 2020.
Despite various obstacles, the process of RMB internationalization has begun. The "Twelfth Five-Year Plan" has clearly put forward the goal of RMB internationalization. The implementation of various policies is not achieved overnight, but as Deng Xiaoping famously said, "Crossing the river by feeling the stones". The internationalization strategy of RMB has China characteristics. On the one hand, the monetary authorities will take many intervention measures. Although the ultimate goal is liberalization, the opening process of foreign capital and RMB exchange will be controllable, prudent and micro-managed. We can describe this process as "open with intervention", instead of implementing full-scale opening as some European countries did in the 1960s.
On the other hand, this opening-up process is strikingly similar to China's policies in the early days of reform and opening-up. In the late 1970s, China divided several special economic zones to open up trade and attract foreign direct investment. When the experiment in special economic zones is successful, this experience will be extended to other places. Similarly, China will now use Hongkong and Shanghai (and possibly Singapore and London in the future) as experimental areas for capital account opening and RMB internationalization. It is foreseeable that the successful experience of the two places will be extended to more areas in Chinese mainland.
In recent years, many measures to promote the internationalization of RMB have been implemented rapidly. In just a few years, offshore RMB bond products (dim sum and dim sum bonds) have grown from scratch and the scale has expanded rapidly. It is estimated that its circulation of 20 1 1 will reach180-230 billion RMB. In addition, China
It has also signed currency swap agreements with Argentina, Belarus, Iceland, Indonesia, Malaysia, Singapore, South Korea and Hong Kong. It is reported that China will sign similar agreements with Pakistan and Thailand, which will bring the total amount of RMB in the swap agreement to 800 billion yuan.
The driving force behind the above changes comes not only from the internationalization of RMB, but also from other reasons. Some reformers in China hope to reduce China's dependence on exports through reform. The international financial crisis in 2008 caused a sharp drop in China's exports, which affected the employment of tens of millions of people. In order to reverse this situation, the government has launched a huge financial investment plan. For fear of asset price bubbles and inflation, the government will be restricted from taking such measures in the future. In order to improve the fragility of the economy, the financial system must be more open to reduce the dependence of exports on the external environment.
Other reformers worry about the distortion of the economy caused by cheap credit. State-owned banks give enterprises cheap credit, which makes enterprises more willing to use capital instead of labor to make profits. In recent years, the ratio of investment to GDP has hit a record high, which is a concentrated reflection of this problem. At the same time, the share of workers in economic growth continues to shrink, which intensifies the income gap and the government's livelihood pressure. Therefore, it is necessary to end the cheap capital policy, let domestic enterprises go overseas to raise funds, and force the government to open the financial system and create conditions for the free trading of RMB.
In addition, the current capital controls and RMB undervaluation have led to the accumulation of China's foreign exchange reserves as high as $3.2 trillion. Many reformers have realized the risk of shrinking huge foreign exchange reserves. It is estimated that the RMB will appreciate by 30% against the US dollar, which means that foreign exchange reserves will depreciate sharply. The longer China's current exchange rate policy lasts, the more foreign exchange reserves accumulate, and the greater the loss when the dollar depreciates. The decision-makers in China are also aware of this dilemma. In order to avoid huge losses in the future, it is imperative to open the financial system.
Now the trade volume between China and other Asian countries has reached several trillion dollars. In the future, importers and exporters will no longer be willing to settle accounts in dollars. As long as trade is settled in RMB, trade financing will also turn to RMB, and the whole banking system needs to adapt to this change. Banks in China will expand their overseas business, while enterprises in China also want to go abroad. Therefore, this demand will prompt the government to formulate policies to adapt to the internationalization of trade and finance. Hong Kong and Shanghai will play a key role in promoting openness.
In the next decade, the global demand for RMB will gradually increase substantially. Traders will need more RMB for settlement, and investors want to hold RMB to preserve their value. These changes are already taking place. Central banks in many countries are shifting more reserve currencies to RMB, not only for appreciation returns, but also for domestic import and export settlement. The wave of RMB internationalization is coming, but it is now restrained only because China has not opened the floodgates.
The double-edged sword of reserve currency
In the process of RMB internationalization, there will be many conflicts of interest and differences of opinion. Existing policies will be reformed, the financial system will be more open, and domestic vested interests will raise many objections and obstacles. In order to overcome these obstacles, policy makers should vigorously publicize the positive significance of RMB internationalization. Opponents will emphasize the economic losses and chaos caused by RMB appreciation and financial opening, while policy makers can push RMB to replace USD as a reserve currency from the perspective of national prestige. In this process, the promotion of national honor can not be underestimated. Reforming the existing system is an arduous task, and words with national pride such as "RMB dominance" can become important propaganda slogans and support for decision makers.
Those who doubt that RMB will become a reserve currency will say that despite its economic achievements, China must win the confidence and trust of other countries if it wants to have the status of reserve currency. Especially in a crisis, investors will ask: Is my money safer in China than in the United States? Will China protect the property rights of foreign investors in difficult economic times? Personally, I think that the process of democratic liberalization in China will enhance investors' confidence. As the largest trading country in the world, it is very important for China to keep its trade and finance open. Protectionism and other destabilizing measures taken by China are costly. This will set back China's efforts to internationalize the RMB. Therefore, once we understand the reasons behind China's promotion of RMB internationalization, we know that China will not do anything that threatens this goal.
There is a contradiction between the dominant position of currency and the accusations it receives. The dominant position of currency has been misplaced and exaggerated to some extent. It is misplaced, because monetary dominance is not the cause of economic dominance, but only the reflection of economic dominance. The benefits of currency dominance are often exaggerated. It's actually a double-edged sword. Currency dominance is an "excessive privilege". For the United States, the price of a strong dollar is huge. Cheap money is an accomplice to the policy of encouraging excessive consumption, which triggered the financial crisis in 2008. Reserve currency status is like a waiter in a bar, constantly providing liquor to guests. Alcoholics are of course responsible for their actions, but the abundant supply of spirits also encourages this addiction. To put it another way, the reserve currency is like a poisonous holy wine, which American policymakers can't resist and China will soon drink. Of course, China must learn how to avoid poisoning.