Analysis of the Choice of the Invoicing Currency in International Trade in China
|Keywords||RMB internationalization Invoicing currency in international trade Producer’s currency pricing(PCP) Local currency pricing(LCP) Vehicle currency pricing(VCP)|
Chinese economy has sustained rapid growth since reform, which has made its economic and political status rising in the world. By contrast, the status of U.S. has been declining gradually though it is still the largest and advanced economy globally. The US-led developed countries’economy has been badly hit by the global economic crisis developing from the U.S. subprime mortgage crisis since 2007. Meanwhile, the dollar’s position has dropped in international monetary system. China pledged not to depreciate RMB both in the Asian Financial Crisis and in the current economic crisis, which played a crucial role in the recovery of the world economy. The international monetary system dominated by the dollar brought a huge loss to the countries including some developed countries and most developing countries in this economic crisis, therefore calls for reforming the system has been more and more intense.Taking this opportunity, China has adopted some measures to speed up RMB internationalization process, such as signing a series of currency swaps agreements with several countries, implementation of RMB bilateral and multilateral international trade settlement pilot, etc. However, the process is still very slow. There are lots of studies about RMB internationalization at home and aboard, but they are broadly about the determinants, conditions and path of monetary internationalization and comparison of the evolution of major international currencies. These studies have no practical significance for extensive use of RMB in international trade settlement.Based on this, the thesis conducts a special research on what determines the currency China chooses to invoice international trade. The thesis firstly presents a literature review, in which determinants influencing the choice of invoicing currency are divided into four categories including macroeconomic level, industrial and microeconomic level, financial level and other factors. It also reviews the latest literatures about RMB internationalization. The review finds that, the determinants are of different levels and can produce interaction, and some intangible factors such as transaction costs and historical inertia play a potential role. Especially this underlying power may promote or prevent the function of tangible ones.The thesis interprets the theoretical mechanism through which each determinant impact the choice of invoicing currency from a microcosmic angle of maximizing a firm’s expected utility, selecting a few representative models, hence explaining why and to what extent each factor determines the choice. The analysis finds that, currency of countries which have more stable money supply, greater degree of product differentiation, higher market share and larger economic size is more likely to be chosen. For the phenomenon of the dollar-leading invoicing structure in developing countries, only firm’s expectation and historical inertia of invoicing currency can give reasonable explanation.Based on the mechanism, the thesis presents an empirical analysis, through panel data models according to the three major functions of an international currency respectively. The conclusion points out that, economic size and market structure are essential determinants, degree of financial market development and capital account liberalization are important, various functions of an international currency produce interaction. But these determinants can be attributed to transaction cost or historical inertia, thus verifying the conclusion of the literature review and theoretical analysis.The thesis also investigates the current situation of RMB internationalization to make up the deficiency of empirical data. It also conducts a comparison of various indexes between RMB and major international currencies. The investigation and comparison reveals that the degree of RMB internationalization lags far behind the fundamental conditions, further implying the great role of the intangible factors.Finally on the basis of foregoing studies, the thesis presents the main conclusions and forwards the countermeasures to promote RMB to be an invoicing currency, ultimately accelerating RMB internationalization process. The countermeasures refers to seven aspects, such as sustaining economic growth, enhancing the competitiveness of enterprises, improving facilities for cross-border trade settlement of RMB, developing RMB offshore and onshore markets, opening capital account gradually, keeping currency stable, constructing perfect legal framework, etc.