How can Shanghai further strengthen its positioning as a center for RMB internationalization?, Promoting the Construction of International Financial Centers RMB | Finance | Shanghai
At present, the global economic and financial landscape is accelerating its evolution, and the domestic "dual circulation" strategic development pattern is steadily advancing. The role of RMB internationalization in the international monetary system and China's dual circulation financial strategy is becoming more prominent. In the new situation, to promote a new round of development in the construction of Shanghai International Financial Center, we should seek benefits and avoid harm, and follow the trend. We should not only strengthen the positioning of the RMB internationalization center, but also pay attention to preventing and resolving systemic financial risks.
Why is Shanghai in the center of RMB internationalization?
When studying the issue of currency internationalization, an economy and its overseas economic and financial activities can be distinguished by flow into cross-border real economy cycles and cross-border financial cycles. The cross-border real economy cycle refers to activities related to the real economy, such as cross-border trade and direct investment; The cross-border financial cycle refers to activities such as cross-border financial investment and cross-border financial transactions.
Currency "cross-border" mainly refers to the participation of domestic currency in cross-border economic or financial cycles. But once a currency crosses its borders, it may continue to circulate overseas, and subsequent cross-border circulation may not necessarily be a "cross-border" circulation with its own country, but may continue to circulate between foreign countries through trade, direct investment, or financial channels. In addition, cross-border circulation is directly related to the development of the currency in overseas offshore markets and offshore financial centers. When the renminbi ultimately becomes an important international currency, it will occupy an important position in both cross-border circulation and circulation in the aforementioned two senses.
The important goal of the construction of Shanghai International Financial Center is to establish a global center for RMB trading, pricing, and settlement. Obviously, only by becoming a global hub for RMB cross-border financial circulation can Shanghai truly achieve this goal. In recent years, the amount of RMB cross-border payments in Shanghai has accounted for nearly 50% of the national total, and the proportion of RMB cross-border payments to the total amount of domestic and foreign currency cross-border payments during the same period is close to 60%. The cross-border RMB settlement volume of Fortune Global 500 companies in Shanghai has exceeded the foreign currency settlement volume, making the RMB the preferred cross-border settlement currency for multinational companies in Shanghai. In this sense, Shanghai is in a position as the center of RMB internationalization.
Deeply grasp the relationship between the three strategic goals
To strengthen the position of the RMB as an international center, it is necessary to deeply grasp the relationship between it and the Shanghai International Financial Center, as well as to leverage the dual circulation financial strategic linkage function.
Firstly, the construction of the Shanghai International Financial Center plays a fundamental role in the other two major goals, which require innovation, deepening, and opening up of the Shanghai financial market. The innovation of the micro financial market and the gradual opening and free convertibility of capital accounts will create fundamental financial conditions for effectively enhancing the real demand for RMB from overseas and providing a globally open RMB asset market, thereby promoting the development of the Shanghai RMB Internationalization Center within the framework of the "two cycles". In this process, Shanghai has gradually become a financial strategic link hub in the new development pattern of "dual circulation" and mutual promotion. This financial strategic linkage function is reflected on the one hand in the fact that the Shanghai financial market promotes the development of the real economy internally, thereby promoting the expansion of internal circulation. In this sense, Shanghai is first and foremost the financial center of mainland China, and its development is based on the domestic economy of China; On the other hand, from the perspective of global scope and international competition, the Shanghai financial market must also be a global and open financial market. The important function of this open financial market is to promote China's gradual realization of the strategy of becoming a financial powerhouse. A financial powerhouse must have the support of RMB internationalization, therefore the Shanghai International Financial Center must become a global resource allocation center and an important hub for communicating global savings surplus and shortage. In this sense, the global financial market in Shanghai must become a "dual circulation" financial strategic link under the new development pattern.
Secondly, there is a mutually reinforcing development relationship between the three strategic goals mentioned above. That is to say, the development of Shanghai's RMB internationalization center and financial strategic links will in turn promote the development of the financial center. For example, when the RMB becomes an important international currency, the connection between overseas financial centers and Shanghai's open financial center will be further strengthened, and overseas institutions and individual investors will participate more in RMB transactions through the Shanghai financial market, which will strengthen the Shanghai's "dual circulation" financial strategy and the function of the international financial center. The financial strategic linkage not only involves transactions and connections between the Shanghai financial market and the global financial market, but also involves financial settlement and financing services in the fields of trade and outward direct investment. In the normal period of economic development and circulation, the financial transactions and services involved in these real economy and financial fields are generally in a relatively stable development process, which enables the "dual circulation" financial strategy to promote the development of Shanghai International Financial Center and RMB Internationalization Center.
Concentration of Various Conditions for Creating RMB Internationalization
Strengthening the central position of RMB internationalization is to create a concentration of various conditions for RMB internationalization in this center. The concentration of these conditions plays an irreplaceable role in promoting the various functions of the renminbi as an international currency overseas, which is difficult for other cities to replace.
Specifically, in order for a country's currency to develop into an important international currency, it requires the support of various basic conditions, and the combination of these basic conditions, in a broad sense, constitutes the conditions that make up the center of currency internationalization. Whether a sovereign currency can serve as an international currency mainly depends on three basic conditions: first, the economic size of the issuing country, including the total economic output, trade volume, financial market size, and its proportion in the world. The second is the liquidity of the financial market, that is, whether the issuing country can provide sufficient financial assets for foreign governments and market investors, whether these financial assets can achieve cross-border transactions, that is, whether the capital account is sufficiently open. The third is credibility, which mainly refers to the relationship between the government and the market, including whether the issuing country can maintain sustained and stable economic growth, whether the currency value is stable, whether financial supervision and legal and regulatory systems are sound, etc. Therefore, relying solely on the basic condition of being the world's second largest economy, it is difficult for the renminbi to quickly become one of the major payment and reserve currencies globally. Promoting the internationalization of the renminbi requires the mutual development of onshore and offshore financial markets, with the development of onshore financial markets and the opening of capital accounts remaining the main driving forces.
In the new situation, Shanghai should make more progress in promoting the opening of capital accounts and the liberalization of financial markets by taking the lead and experimenting. At present, Shanghai should focus on but not limited to promoting high-level institutional reform and opening up in finance from the following aspects: firstly, gradually shift the current pipeline style, segmented market, and regional opening model to a unified institutional and rule-based opening, and merge similar financial business rules as much as possible. The second is to establish and improve the system for overseas enterprises to issue CDRs in the domestic market and go public for the second time domestically, in order to introduce more high-quality listed companies to China's capital market. The third is to accelerate the construction of an international financial asset trading platform, providing RMB financial assets to the international market through the platform as a carrier, achieving staggered development with existing open channels, and meeting the differentiated investment needs of investors. Fourth, in accordance with the requirements for the construction of a unified big market and the international trend, we will accelerate the construction of a unified big market for onshore bonds and the transformation of the corporate system of financial trading venues, opening the way for the smooth circulation of "RMB treasury bond". The fifth is to accelerate the establishment of international standards for the RMB carbon finance market, improve domestic carbon finance market policies, trading rules, and laws and regulations, create diversified trading varieties such as carbon futures, carbon funds, and carbon bonds priced in RMB, and attract more overseas investment to participate in carbon finance trade and investment.
Three types of systemic financial risks need to be prevented
A financial center is the aggregation of financial institutions, markets, and products, as well as the aggregation of financial risks. Strengthening the positioning of the RMB internationalization center, Shanghai needs to prevent three types of systemic financial risks.
Firstly, the risk of co directional volatility in the financial market. This type of risk refers to the risk that the total volume and size of the financial market may shrink or even collapse simultaneously under external factors. For example, when a country has a foam in the stock market or real estate, the functional financial center is often the place where the foam is concentrated at the same time. At this time, if there is an external shock, the stock market and the real estate market may fluctuate downward at the same time, or even break out of a crisis, and thus have an infectious effect.
Secondly, there is a risk of contagion related to financial products. Due to the important role played by currency and capital markets in the competition of contemporary international financial centers, these financial products and instruments have the characteristics of standardization, transparency, and cross regional and cross-border flows, resulting in complex chain like and network related relationships. Once financial risks occur, they may first be systematically associated with the financial center.
Third, the risk of debt contract type foam collapse and real economic crisis chain outbreak. This risk mainly erupts in financial centers where the stock market is underdeveloped and debt contracts dominate. For example, China is still a bank dominated financial structure. At present, loans related to real estate account for a large proportion of total bank loans. During the formation of the real estate foam, the risks contained in this debt debt relationship are relatively hidden, and the probability of chain financial risks is relatively low. However, it must be noted that from a national perspective, if systemic financial risks occur in other cities, they may first have unpredictable impacts on Shanghai's stock, bond, and real estate markets through expected effects, which may cause a chain reaction in the Shanghai financial market.
Based on the three possible channels for financial risks mentioned above, it is necessary to make early plans, conduct relevant risk stress tests, and pay special attention to preventing systemic financial risks.
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