Zhong Guo Jin Rong Xin Xi Wang·2025-12-31 03:06Core Viewpoint - The presentation by the chief strategist of CICC highlights the evolution of the international monetary system and the potential for the renminbi to become a central currency, driven by various economic and institutional forces [3][4][8]. Group 1: Historical Context of Currency - Currency exhibits a natural order characterized by a "center-periphery" structure, with the US dollar currently in a central position following the breakdown of the Bretton Woods system [3]. - The stability of this order is evident, as historical central currencies like the pound and dollar have maintained their status for over a century [4]. - The transition of central currencies is not fixed, with historical shifts from the Spanish dollar to the Dutch guilder, then to the pound, and finally to the dollar [4]. Group 2: Forces Driving Currency Evolution - The first force is economic strength, where a larger economy with significant trade volume is more likely to become a central currency [5]. - The second force is the robustness of financial markets, which are essential for establishing trust in a currency on the international stage [5]. - The third force is institutional credibility, such as property rights protection, which underpins trust in a central currency [6]. - The fourth force is technological advancement, which has historically transformed currency forms and payment systems [6]. - A debated fifth force is military power, which some argue can protect but not create currency credibility [6]. Group 3: Stability of Central Currencies - The strong network effects of these forces create inertia, making established currencies difficult to displace [7]. - These forces are interrelated, enhancing each other and raising barriers to entry for new central currencies [7]. - Existing central currencies can leverage their influence through institutional arrangements to maintain their status [7]. Group 4: Current Context for Renminbi - The current economic conditions suggest a potential shift, as China has surpassed the US in purchasing power parity (PPP) and has the largest trade volume [9]. - The US dollar's status as a safe asset is showing signs of strain, with changes in asset correlations indicating a weakening of its traditional role [9]. - The need for the renminbi to float more freely is emphasized, as this would facilitate its use in international trade and finance [10]. Group 5: Recommendations for Renminbi Internationalization - The development of both onshore and offshore financial markets is crucial, focusing on liquidity coordination and cross-border financial product innovation [10]. - Increasing the openness of China's capital account is necessary to enhance investor confidence and facilitate international transactions [11].