Moreover, renminbi internationalization can make the currency exchange rate more flexible and determined by market forces, which will be conducive to the pricing, marketing and operation of renminbi derivatives. Financial derivatives are independent of the balance sheet of the commercial banks, so this sector of banking business won't affect the asset and liability situation of the banks but can bring in more service charges. Since the 1990s, financial derivatives have gradually become a major source of bank profits.

If the renminbi is fully internationalized, Chinese banks will be able to develop more monetary financial derivatives, such as forward foreign exchange contracts, foreign exchange futures and options, and currency swaps. In this way, Chinese commercial banks can expand their business and innovate to create greater profits at lower risk.

Second, renminbi internationalization will be helpful for the overseas development of domestic banks. During the process of internationalization, the banks' overseas renminbi business will be extended, and domestic financial institutions will be required to expand in overseas markets. The two will in turn provide new opportunities for renminbi internationalization.

Currently, renminbi cannot be invested in the overseas market, meaning most of the Chinese currency will eventually flow into the domestic market. The major channels for the backward flow of renminbi include non-residents' spending when they travel in China, assets purchase or direct investment in the mainland. Moreover, some renminbi reenters the country via the banking system through two ways: Firstly, non-residents deposit renminbi directly into border financial institutions (for instance, banks in bordering regions like Inner Mongolia and Yunnan Province allow qualified residents from neighboring countries to deposit renminbi); the other is re-deposits by foreign banks of their renminbi into domestic banks.

China has been working on establishing a renminbi reflux mechanism. At the end of 2003, the People's Bank of China allowed Hong Kong banks to open individual deposit, exchange, remittance and bankcard services. This policy was officially launched on February 25, 2004, indicating the central bank's effort to establish a reflux mechanism. At the end of 2004, renminbi business in Macao also started. Later, in January 2007, the central bank allowed mainland financial institutions to issue renminbi financial bonds in Hong Kong, which further expanded the renminbi reflux channel. To date, China has established official renminbi circulation channels in Hong Kong and Macao. Meanwhile, major domestic commercial banks have set up operating branches in major international financial centers as well as regions with heavy trade activity with China. They actively carry out renminbi business, and their overseas service network is gradually taking shape.

The overseas branches of commercial banks provide circulation channels for renminbi and are equivalent to the creation of an infrastructure for renminbi cross-border circulation. Through the legal channel of the commercial banks, the renminbi inflow and outflow will be more open and convenient. Moreover, standardized renminbi circulation in the international market can provide legal ways for supervisory departments to track renminbi circulation. In addition, under the current international environment, using more renminbi in international settlement can ease the pressure of renminbi appreciation.

Experience in the United States shows that U.S. banks can borrow money from their overseas branches to cover the liquidity shortage in order to ease pressures from domestic interest rate hikes. Therefore, with the internationalization of the renminbi, Chinese domestic banks can solve their liquidity problem by making full use of their overseas branches, instead of frequently using interest rates to combat liquidity pressures.

In a word, renminbi internationalization will exert positive influences on bank profits and toward upgrading the business structure of banks