On Nov. 30, the International Monetary Fund announced to include China’s currency into the Special Drawing Rights (SDR) basket, which will take effective from Oct. 1, 2016.
 

In a move that scholars are hailing as a significant step toward the internationalization of the RMB, the International Monetary Fund announced on Nov. 30 that it will include China’s currency into the Special Drawing Rights (SDR) basket, which will be implemented as of Oct. 1, 2016.

Li Xiao, a professor from the School of Economics at Jilin University, said the decision is symbolic of the increasing influence of the RMB as a reserve currency. In the future, all sides need to continue efforts to realize RMB internationalization, he added.
 

It is widely believed that China’s “Belt and Road” initiative has brought development opportunities for economic cooperation among European and Asian nations amid a slow global economic recovery and disintegration. One concern for academics is finding ways to grasp new opportunities and make breakthroughs in RMB internationalization.
 

Li said the RMB has become more influential in neighboring countries and regions since 2000. With the expansion of foreign trade after China’s entry into the WTO and the establishment of the China-ASEAN Free Trade Area, the internationalization of the RMB has caught the attention of decision-makers and theorists in this field. In the wake of the global financial crisis, the defects of the existing dollar-based monetary system have loomed large, he said.

China has been an active player in the reform of the international monetary system and made remarkable achievements in the internationalization of its currency. However, RMB internationalization still faces real difficulties as the progress of monetary cooperation remains slow in Northeast Asia and at the global level.

Scholars pointed out three major problems. Above all, arbitrage activities are common because the domestic capital market is still imperfect. A large quantity of overseas RMB obtained by trade has reflowed through capital accounts, impeding the accumulation of the currency overseas. Moreover, the lack of investment channels in the offshore market has led to low liquidity and inconsistency in RMB clearance.
 

Zhang Ming, a research fellow from the Institute of World Economics and Politics at the Chinese Academy of Social Sciences, said there is a wide space for cooperation between the “Belt and Road” initiative and the strategy of RMB internationalization. “The formulation and implementation of the ‘Belt and Road’ will greatly push forward the internationalization of the RMB.” How the two strategies interact to facilitate each other should be a focus of academic research, he suggested.

Geng Xue is a reporter at the Chinese Social Sciences Today.