Pros And Cons Of RMB Internalization

RMB internalization looks to be a global trend. Please analyze the pros and cons of internationalized RMB for the economy of Mainland China by reviewing the history of British Pound, US Dollar, Japanese Yen and Euro as international currencies.
 Introduction
RMB internalization refers to the transformation that RMB makes to gradually become a currency commonly used in assume valuation, settlement, trading, investment or reserve functions in the global financial market. To evaluate RMB’s international role, the judgment could be made mainly in terms of three aspects ---- Can RMB be used freely in other countries? How’s the size of the financial market denominated in RMB? How much global trade is settled in RMB?

 Current Situation
Though

From2008, currency swap agreements have been used all around the world. Reported by Bloomberg, on October 2013, the Russian and Chinese central banks signed an agreement on yuan-rubles swaps to double trade with its biggest partner. In fact, PBoC has signed the currency swap agreements with 28 countries’ central banks, such as Canada, Korea and Argentina. By doing so, it provides powerful support for the development of overseas RMB market and sets up a yuan-denominated one-to-many trading, financing and clearing system. In the context of globalization, the currency swap agreement has transformed its role as dealing with the crisis to expanding the bilateral trade and investment. Not only can it lower the risk of exchange rate, but also, it advances the global economiy, trade and investment process by RMB

Seigniorage is counted as the economic cost of producing a kind of currency within its country. If the money created is worth more than it costs to produce it, the revenue is positive. Issuing an international currency is like taxing other countries for seigniorage and buying resource overseas by printing mony. Currently, China has one of the biggest foreign exchange reserves. Bearing the inflation tax, China is lending huge loan to other governments for free. After the internalization of renmenbi, China can improve the loss of ‘wealth drain’ caused by using foreign currency and open up a new approach by gaining from the seigniorage