Huang Chen | Capital Controls, Trade Finance, and RMB Internationalization

Recently,Sponsored by the International Finance and Economic Research Center (CIFER) of the PBC School of Finance at Tsinghua University, hosted by Liaoning University, and jointly organized by the International Finance and Economic Research Center (CIFER) and the School of Finance and Trade of Liaoning University,the "2023 Academic Symposium on International Trade Disputes and the Reconstruction of Globalization"was successfully held.

Assistant Researcher of CIFERHuang Chenpresided overSub - forum 5: The International Monetary System [Online] andshared his paper co - authored with his collaborators titled "Capital Controls, Trade Finance, and RMB Internationalization"

Huang Chen,a post - doctoral researcher at the PBC School of Finance at Tsinghua University, an assistant researcher at the International Finance and Economic Research Center (CIFER) of the PBC School of Finance at Tsinghua University, and a Ph.D. in Economics from the University of Southampton, UK. His research fields include macroeconomics, labor economics, and international finance. He has presented his working papers at international and domestic conferences such as the Janeway Research Center at the University of Cambridge, the International Finance Forum of the Chinese Association for World Economics, the International Conference of the Global Labor Organization (GLO), and the 2023 Annual Conference of the Chinese Economists Society in the United States. He won the Outstanding Paper Award in the essay competition of the 2023 Financial Street Forum Annual Conference.

Huang Chen

Huang Chen said when introducing the paper thatthis paper constructs a model to study the role of China's capital controls in influencing the process of RMB internationalization. In this model, the world consists of two major powers — the United States and China, and a series of small open economies that make up the rest of the world. This paper emphasizes that the emergence of multiple international currencies is driven by the demand for international trade financing. Households from other countries in the world decide which type of assets to invest in, while trading companies decide which assets to use as collateral for trade financing. The sustainability of this mechanism is driven by the positive interaction between the savings decisions of households and the financing decisions of trading enterprises. The model exogenizes different degrees of opening of China's capital account and generates an equilibrium distribution of the international monetary system at equilibrium. From the numerical analysis results of the model, as capital controls increase, the usage of the RMB in other countries in the world decreases; this paper simulates the path of how a country's currency transforms from an international currency to a dominant currency, and then simulates the distribution paths of the US dollar and the RMB in subsequent policy experiments, and evaluates the corresponding degree of RMB internationalization and the international usage rate of the US dollar under different ratios of the economic sizes of China and the United States and different ratios of the bond issuance volumes of China and the United States.