High-quality development has become a clear orientation for China's economic growth. It will determine the future of the internationalization of the Chinese currency, while high-level financial opening up is conducive to high-quality economic development.

Financial opening up at a higher level will improve the efficiency of the domestic economy and finance, and consequently, exert a positive influence on the rest of the world. Domestic and international economic and financial connections should be enhanced to improve the risk management capacity of domestic corporations and institutions. Economic development should be more inclusive so that more people from home and abroad benefit from China's economic growth.

Profound changes have taken place in the domestic and international environment since the process to internationalize the renminbi started 10 years ago. As China's macroeconomy enters a period of transformation and readjustment, the economic growth has changed from high speed to medium-high speed. The balance of payments has seen surplus only from the current account instead of from both the current account and the capital account, and the foreign exchange reserves have been growing slowly or even declining. The financial market is more open and sensitive, with prices fluctuating more

significantly.

Outside the country, global economic growth is slowing down while trade protectionism is rising, curbing trade and investment. The competition among major currencies has become fiercer. As the renminbi is increasingly used in the international market and its influence strengthens, it is attracting more attention and facing increasing responsibilities and obstacles. Changes in the domestic and international environment will affect the scale, structure and ways of the yuan's international use.

Renminbi internationalization is now in a stage where the driving force is changing from policies to the market. The change has been seen in the last three years and will strengthen in the future. Market demand is the internal driving force for the renminbi's internationalization, and market supply and demand will become the major force to determine the international use of the renminbi. Under the market-driven pattern, the international development of the renminbi will closely follow the market demand and play a more active role in the development of the real economy and finance.

In the past decade, the structure of cross-border use of the renminbi has changed remarkably. Trade remains the primary purpose for its cross-border use, but its proportion is declining. The use for capital and financial purposes, especially indirect investment, is growing rapidly, accounting for more than 60 percent of the yuan's cross-border settlement. This will be further consolidated in 2019, with renminbi-denominated investment and financing being more dynamic.

Since 2009, starting from cross-border trade settlement, China has established policy frameworks and a supporting facility system. The policies on the renminbi's internationalization will be gradually improved, focusing on actual effects, coordination and being explicit and predictable, in order to ensure market confidence.

History shows that the strategy of financial opening up exerts a huge influence on the economic development of a country and the internationalization of its currency. Rashly opening up the financial sector before the conditions are mature will not only negatively impact the microeconomic entities, but may lead to a serious financial crisis.

Financial opening up at a higher level must be realized during further reform. It should be based on stable growth of the real economy. The capability of finance to serve the real economy should be improved to promote sound interactions between financial institutions and business entities and improve the productivity and comprehensive competitiveness of corporations. Risk management capabilities of enterprises and financial institutions should be strengthened. They should enhance their compliance and address risks during opening up.

Enhanced financial opening up should have a precondition that the financial market is highly developed. The government should both improve the efficiency of the market in allocating financial resources, and enhance the capability of the market in addressing external impacts. During the opening up of the financial market, the money market, bond market and foreign exchange market should be given top priority.

Financial opening up requires suitable financial infrastructure to provide necessary technological and systemic support. The government must strengthen financial infrastructure construction, especially the yuan-denominated payment and settlement system. It should also pay attention to soft infrastructure construction such as financial systems and standards.

Financial opening up should be secured by improved financial administration. The government must promote foreign investment administration such as optimization of negative lists and incorporate administration of cross-border capital flows in the macro-prudential policy framework, monitoring and administering cross-border capital flow risks in order to ensure that no systemic financial risks emerge.

This is an edited excerpt of a report issued by the International Monetary Institute at the Renmin University of China

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