On Condition and Path of the Regionalization of China Yuan from the Perspective of ASEAN〔*〕

Gou Dongning，Xiang Jingyu

(Department of Finance Beijing Language and Culture University，Beijing 100083)

Ⅰ.Introduction

China’s status in world economy has been constantly improved since the East A-sian financial crisis in 1997.Especially after the 2008 global financial crisis，the economic turmoil of America and dollar fluctuation have deeply influenced various country’s economy which takes U.S.dollar as major reserve currency and currency of trade settlement.International currency system dominated by U.S.dollar has been doubted，while the status of China Yuan in international currency system has caught people’s eyes.With the strengthening of China’s economic power，the distribution scale of China Yuan in the neighboring countries and regions has become larger and larger.There is a trend of regionalization of China Yuan.

Ⅱ.Current situation and significance of the regionalization of China Yuan in ASEAN

1.Brief introduction

The dialogue between China and ASEAN began in July，1991;China and ASEAN issued Joint Declaration in December，1997，establishing the good-neighborly relationship of the 21st century;The goal of 2010 China-ASEAN free trade zone has been set in 2002;The China-ASEAN free trade zone made up of developing countries with 1.9 billion population，6 trillion dollars GDP and total volume of trade of 4.5 trillion was formally established on Jan.1，2001，which is the third largest free trade zone after Northern America and EU.

2.Current situation

The establishment of regional financial mechanism between China and ASEAN has realized substantial development since the 2008 international financial crisis.According to the data issued in Economic Information Daily on Sept.24，2012，China has signed bilateral currency swap agreement with many ASEAN countries so far and set financial organizations;at present，central banks of many ASEAN countries，such as Philippines and Malaysia，and monetary authorities have listed China Yuan as official reserve currency.Cross-border settlement of China Yuan has been spread to all countries in ASEAN.

3.Significance

The regionalization of China Yuan in ASEAN is an important step for the regionalization of China Yuan in Asia and even in the world，which will surely exert great influence over the development of the economy of China，ASEAN and the world.

For China，the regionalization of China Yuan in ASEAN means that China Yuan can free flow in China and all countries of ASEAN，which is conducive to China’s link with ASEAN countries in economy，trade and finance and improving the interaction of currency between China Yuan and neighboring currencies.

For ASEAN countries，the regionalization of China Yuan in ASEAN is conducive to the foreign trade income stability of ASEAN countries.After the global financial crisis in 2008，the fluctuation of dollar，the largest international reserve currency in ASEAN，has exerted great impact on the stable development of ASEAN economy.China is the largest trading partner of ASEAN，so the China Yuan，as the important trade settlement currency and investment reserve currency，will help ASEAN countries get rid of the dependence on dollar，relief the influence of the fluctuation of dollar over foreign trade income and improve economic independence.

For China and ASEAN，the regionalization of China Yuan will make China-ASEAN a unified and efficient market.The trades between China and ASEAN countries are mainly settled in dollar，and there is uncertainty in the exchange rates between China Yuan and U.S.dollar as well as between the currencies of ASEAN countries and U.S.dollar.There are still great obstacles in the flow of commodities and elements between China and ASEAN.The regionalization of China Yuan in ASEAN is conducive to breaking down these barriers and further deepens trade exchange between China and the member countries of ASEAN.

For world economy，the regionalization of China Yuan in ASEAN is good for controlling dollar hegemony，breaking the world currency system dominated by dollar，enriching the foreign reserve constitution of various countries and promoting the current currency system reform，which will realize the diversified development of world economy and financial system and enhance the stability of world economy.

Ⅲ.Conditions of the regionalization of China Yuan in ASEAN

1.Internal conditions

(1)China’s state credit and stability of the value of China Yuan

The choice of market determines whether a currency can be the regional key currency，and it is the great economic power of the issuing country and state credit supported by economic power that determine the choice of market.

The state credit of a country can be seen from three perspectives，namely national economic strength，national financial ability and foreign exchange reserve and international balance of payment.Statistics show that China has stable economy and sound state credit which is able to repay capital and interest with small economic risk.

The stability of currency value is an important criterion to judge whether one currency can be the regional key currency.The stability of currency value includes internal stability and external stability.Internal stability is determined by the macroeconomic environment of a country，which is usually measured by inflation rate;external stability is the stability of exchange rate.

Except the severe short-term inflation from 1994 to 1995 due to the combination of foreign exchange，China’s domestic inflation rate has always been kept under 5%.Due to national macro-level adjustment，the exchange rate of China Yuan against U.S.dollar has kept steady.In general，currency value of China Yuan is stable.

(2)The comparison of trade competition between China and ASEAN

Export scale and international market share

Greater export scale and larger international market share means larger influence over world’s economy.According to the official data issued by WTO，the trade volume of China and ASEAN has kept increasing.The trade export growth of China has always been higher than world average level，while the trade export growth of ASEAN has been almost the same with world average level.

Trade competition index and trade complementarity

Generally speaking，China has greater trade competition than ASEAN.Meanwhile，due to the difference in natural resources，China and ASEAN have strong trade complementarity in terms of raw materials and agricultural products.

2.External conditions

(1)China-ASEAN economic correlation

Geographic location of trade

China is contiguous to ASEAN.Therefore，the traffic is convenient and transportation cost is low.

GDP of ASEAN in China’s trade

The larger trade proportion of one country or region in China means greater dependence on Chinese market.According to the statistics issued by WTO，China has close economic relation with ASEAN，and is the most important and closest trading partner of ASEAN.

(2)The scale and development speed of China-ASEAN free trade zone

China-ASEAN free trade zone has become a huge economic entity with the largest population.It is also the largest free trade zone made up of developing countries.

(3)The scale and progress of China-ASEAN currency swap

China central bank has signed bilateral currency swap agreement with central banks or currency authorities of 22 countries and regions by Oct.2013.

(4)The increasing demand of China Yuan in the folk ASEAN

There is an increasing need of China Yuan in the folk ASEAN.China Yuan has also been accepted officially.

Ⅳ.Path of the regionalization of China Yuan in ASEAN

1.The design of priority regions of the regionalization of China Yuan in ASEAN

The priority targets of regionalization of China Yuan in ASEAN should be comparatively developed and financially open countries that have close economic and friendly political relations with China.Signore，Thailand，Malaysia and Indonesia can be taken as priority countries.

2.The evolutionary path of the currency function of the regionalization of China Yuan in ASEAN

(1)Promoting China Yuan as the settlement currency of ASEAN

First，promote China Yuan as the settlement currency of the trade exchange between China and ASEAN;second，promote China Yuan as the settlement currency of the trade exchange within the member countries of ASEAN，which requires that China Yuan should be generally used in the trade of the member countries of ASEAN and the support of ASEAN reserve currency.

(2)Promoting China Yuan as the investment currency of ASEAN

Promoting China Yuan as the investment currency of ASEAN aims at encouraging China’s enterprises to make investment in the member countries of ASEAN and member countries of ASEAN to keep China Yuan and use it to make investment in China or within the ASEAN in order to increase the value of the keeper of China Yuan and lay foundation for the further regionalization of China Yuan and making it the reserve currency of ASEAN countries.

(3)Promoting China Yuan as the reserve currency of ASEAN

There are five conditions of regional reserve currency:the political and economic stability of the issuing country;stable value of currency;large scale of transaction;the floating exchange rate system of major reserve exchange rate;allowance of overseas non-resident using this currency as deposit account settlement.China Yuan meets the first four requirements，and the fifth requirement is also about to realize.

Ⅴ.Conclusion

In conclusion，as a result of the overall consideration of politics，economy and culture，China Yuan chooses to regionalize from ASEAN which is close to China and has close interaction and in-depth trade relations，which is a rational and objective choice.The path of the regionalization of China Yuan follows the principle of being from point to surface，thus possessing practical operability.However，we must recognize that the regionalization of China Yuan in ASEAN is a long process from the perspective of politics and economy which needs to be propelled steadily and cannot be fulfilled overnight.The status of China Yuan as the currency of settlement in regional trade settlement in the process of propelling the regionalization of China Yuan so as to keep the independence of China’s economic policy.

Notes:

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