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Hello everybody! Welcome to the session “RMB Exchange Rate and Globalization”. I am DI Dongsheng from the School of International Relations, Renmin University of China. So today, let’s talk about the internationalization of the RMB.

[Title:Unbalanced Global Monetary Order]

There is a certain correlation between the global share of a country’s currency and the share country’s GDP in the global GDP – in other words, the global shares of virtual economy and real economy. But we see lots of deviation from the statistical data. The United States and the United Kingdom combined shared about 27% of the global GDP in 2019, but the currency internationalization index of these two countries added up to 58. The eurozone’s GDP accounted for about 15% of global GDP, but their currency internationalization index was 25. So, the United States and Europe shared about 42% of the global GDP, but their currency surprisingly accounted for 83% of the world’s currency. East Asia in the broader sense, namely China, Japan, South Korea plus some economies like ASEAN, had a global GDP share of 27%, but their currency internationalization indices only added up to 8%. So why is there such a big deviation? I think this deviation stems from the different economic structures and roles of these countries. Simply put, East Asian economies are huge savers of trade surplus countries, while the US and Europe are the equivalent of banks, absorbing deposits from East Asia. As we have repeatedly said, in the anchorless monetary system, saving large amounts of money is a disadvantage. While you’re doing all the hard labor and dirty work, the benefits go to the bankers. Once the economic system is in trouble, you will still be the one to bear the major costs of adjustments.

[Title:Progress in RMB Internationalization]

The 2008 financial crisis originated in the United States, but the United States used the privileged position of the dollar as the global currency to transfer the cost to the world which should have been borne by America itself. This matter stimulated China’s political elites. As a result, a famous policy paper by Zhou Xiaochuan, who was then the governor of the central bank, was published on the website of the central bank in 2009. That article called for a global reform of the currency system, and it was from 2009 that the Chinese government began to put the internationalization of the yuan on the agenda of reform and opening up.

The IMI research team at my university, Renmin University of China, launched the Currency Internationalization Index, which is a weighted average index that estimates the global share of each country’s currency by the currency’s international functions. The factors examined include the currency’s share in cross-border trade settlement, financial transactions, direct investment, foreign exchange reserves, etc. By taking the weighted average of the shares in these sub-categories, we can get an index that measures each currency as an international currency. The value for all currencies combined is 100: the U.S. dollar has fluctuated between 52 and 55 over recent years; the euro between 22 and 25; the British pound and the Japanese yen each has more than 4. CNY only had an index value of 0.02 in 2010 and 2011, which means that it only accounted for 0.02% of the global currency use. But by 2020, this index rose to about 4, about to catch up with the pound and the yen and to enter the third tier of the global monetary system.

So, let’s look at each sub-category. It is mainly the share of RMB in trade and direct investment that were growing relatively fast. The share of RMB in global reserves is still a little more than 2%. Why is the share of reserves relatively lagging behind? I think the key reason is that China itself is still the largest country in the world’s reserves, and our reserves can only contain assets denominated in other countries’ currencies. If one day the government debts of the U.S. and European countries that we hold can be denominated in RMB, then this indicator will also soar rapidly.

At the moment, the progress of RMB internationalization looks pretty good, especially in the past three years. We have foreign exchange reserves of more than 100 billion US dollars pouring into China’s national debt every year. The problem RMB is facing is that the pool of national debt is too small and too narrow: The central government is reluctant to borrow, so other countries can’t buy our debt. And because of the split between the government bond and quasi-government bond markets, even if other countries buy our debt, it is very inconvenient to trade in and out. This is because we do not actively and intentionally provide an open asset pool that’s large and deep enough. The best quality assets in the pool should be the RMB-denominated short, medium and long term Chinese national debt for the world. In the future, as the Chinese government debt continues to expand, RMB will gradually take up a higher and higher position in global reserves.

So, in terms of trade denomination and settlement, only the strong side of the trade can ask the other side to settle the international trade in the strong side’s currency. For example, in the 1980s, Germany’s status in import and export commodities was much higher than Japan’s, and its bargaining position was so strong that the use of the Deutsche Mark in Germany’s foreign trade reached 88%, while the yen was only 35% in Japan’s foreign trade. With the continuous development of China’s high-end manufacturing industry, the share of RMB-denominated settlement in our foreign trade will also experience continuous growth, just like the Japanese yen did back then. Of course, with the gradual liberalization of China’s capital account and the continued growth of foreign direct investment, the use of RMB in capital account is also making steady progress.

[Title:Reform Efforts of RMB Internationalization]

How has China’s RMB internationalization progressed so rapidly in a short span of about 10 years? The main reason is that the Chinese government has adopted a series of policy measures, which resulted in a natural growth of the previously suppressed RMB internationalization index. China’s share in the virtual economy began to move closer to its share in the real economy.

To facilitate the internationalization of the Chinese RMB, the government, especially the central bank, has adopted a series of reforms. These reforms, instead of actively promoting the internationalization of the currency, eased the artificial regulations on the cross-border use of RMB.

The government’s deregulation on the cross-border use of RMB:

1. Allowing increased use of RMB in settlement for importers and exporters;

2. Allowing enterprises to use RMB for cross-border direct investment;

3. Allowing foreign governments and mainstream international financial institutions to purchase and hold Chinese government bonds;

4. Allowing freer fluctuations in the foreign exchange rate of RMB;

5. Under the premise of macro stability, allowing free inward and outward flows of funds on more sub-categories of capital accounts;

6. Allowing the exchange rate of RMB to be determined more by market supply and demand rather than by government guidelines;

7. Allowing foreigners to invest in China’s stock and bond markets and gradually liberalizing the quota restrictions;

8. Allowing the existence and development of RMB foreign exchange and bond markets in offshore markets such as Hong Kong and London.

Of course, on the other hand, the progress of RMB internationalization is also inseparable from some proactive actions taken by the Chinese government.

Active actions for RMB internationalization:

1. Promoting the inclusion of RMB into the IMF SDR currency basket – RMB became the fifth most active currency;

2. Through the currency swap agreement, the central banks of dozens of countries have the right to use trillions of RMB, and can use their local currency to exchange with RMB;

3. Launching the RMB direct quotations with dozens of non-USD currencies and publishing the RMB CFET index to diminish the importance of the RMB-USD exchange rate as the only indicator;

4. Introducing the CIPS I and CIPS II cross-border payment projects, which gave the RMB its own global payment platform;

5. Introducing the digital currency DCEP based on blockchain technology which can bypass the U.S.-controlled SWIFT system when necessary;

6. Establishing a deposit insurance system and a macro-prudential system, which allow the central bank to respond to economic fluctuations and risks in a more market-oriented manner;

7. Advocating for the establishment of multilateral international platforms for financial and monetary cooperation such as the AIIB, the BRICS Development Bank and the BRICS Contingent Reserve;

8. Establishing an open commodity exchange center and corresponding derivatives, forming a triangular cycle from crude oil, to the yuan, and to gold.

Regarding number eight, a triangular cycle from crude oil, to the yuan, and to gold. What does this mean? Resource exporters around the world, for example, some resource exporters in the Middle East, can sell their crude oil, natural gas or iron ore on the futures exchange market in Shanghai and invest RMB in the Chinese domestic financial market. Or if they don’t want to hold RMB assets, they can exchange RMB for gold on another market in Shanghai and ship the gold home. The entire transaction does not need to be transferred into the US dollar.

In addition, the actions of several domestic and foreign unofficial entities have also had a significant impact, including third-party payment systems like WeChat and Alipay, and their expansion in the global Chinese community and the tourism economy. International financial institutions, such as Reuters and Morgan Stanley, included in their stock and bond indexes China’s financial assets, with gradually increasing weights. Such profit-seeking behavior of these market players has also objectively boosted the internationalization of RMB.

Before 2015, the path of RMB internationalization was somewhat similar to that of the Japanese yen in the 1980s. Efforts were made to increase the share of the local currency in international trade settlements, and an overseas market for Japanese yen was developed by leveraging the Hong Kong offshore market. Through this model, Japan rapidly promoted the internationalization of the yen in the 1980s. By the mid-1990s, the global share of the yen had reached a peak of 10%, but the cost was also obvious. Hong Kong’s offshore capital arbitrage funds reflowed substantially back to Japan, fueling the Japanese domestic asset bubble and financial bubble. After the Japanese financial bubble burst in 1992, the Japanese economy fell into a long-term depression, and the yen’s international share has gradually fallen back to about 4% today. So objectively speaking, the internationalization of the yen after all this tumult, has failed, and it has not achieved the effects and indicators that were originally expected.

In 2015, the offshore RMB exchange rate in the Hong Kong market fluctuated, and there was a great expectation of decline of the RMB exchange rate. Many hedge funds from the United States and Europe came to Hong Kong to start shorting the RMB to make a profit. Many domestic financial institutions also wanted to make a fortune from the nation’s misfortune. The Chinese government had to sharply increase the overnight borrowing cost of RMB and temporarily tighten the policies on foreign exchange use to curb the wave of speculation. This caused the scale of RMB deposits in Hong Kong’s offshore market to shrink significantly, and China also realized the shortcomings of the Japanese model. The RMB internationalization after 2015 no longer follows the Japanese model, but a multi-pronged hybrid model. This includes RMB commodity trading, RMB outbound direct investment, the opening up of the government bond market, the construction of Shanghai International Financial Center, the liberalization of foreign investment access to the financial sector, the Belt and Road Initiative, the development of Chinese companies across borders, etc. If the process of RMB internationalization before 2015 was a wild goose chase, after 2015, it can be described as a step-by-step process, taking stable and far-reaching moves. The official document coined a new phrase, “steadily and prudently advance” RMB internationalization, which has a profound meaning.

I think there is still a lot of work to be done in the future, such as bringing together the central bank, the Ministry of Commerce, the Development and Reform Commission, taxation, customs and other systems at the central level to coordinate their policies and regulations to further simplify the procedures in RMB denominated settlement for import and export as well as investment and financing, so that domestic and foreign entrepreneurs will enjoy greater convenience and be more willing to use RMB. Another suggestion is to print the most commonly used language in the world on our RMB banknotes. In addition to Chinese, there should also be languages like English, French, Spanish, Russian, Arabic, etc. Extra-large denominations should be introduced, mainly to facilitate the needs of certain special scenarios in financially underdeveloped regions outside of China. We should abandon the superstition about the macro debt ratio, unify the Chinese government bond markets, increase the transaction activeness and convenience, and have the Chinese central government issue a batch of special government bonds to replace the high-interest debts of those local governments with outflowing populations. This will not only save the interest cost of the whole government, but also enlarge and deepen China’s national debt pool.

Another issue that is often overlooked: When our Bureau of Statistics collects and publishes various types of data, we must use RMB as the unit of measurement and avoid using USD as much as possible. We should encourage or even require any economies that have close economic ties with us to use RMB more often as the alternate unit of measurement. Such a principle applies to Hong Kong’s financial markets and the developing countries with close trade and investment assistance relations with China. We must not underestimate the measurement unit in reporting. It gives a strong sense of guidance and framework, and we must take this technical issue to the height of patriotic loyalty and political correctness.

[Title:America’s Attitude towards RMB Internalization]

Now let’s talk about America’s attitude towards CNY internalization. In the first few years after 2010, many people in China thought that the U.S. would be very concerned about the internationalization of RMB which would cause strategic suspicion in the US. So, they were cautious in the first few years. Before 2015, China’s official documents never mentioned RMB internalization. Rather, a more neutral concept known as “promoting the cross-border use of CNY” was used. In 2013, I conducted a questionnaire survey of the global financial community and global policy makers, and also conducted some in-person interviews with policy experts and diplomats in the U.S. and Europe. What was an important difference that emerged from the questionnaire responses? All those who were engaged in economic and financial practice were very positive about the prospect of RMB internationalization, even more positive and optimistic than I was. But those who were engaged in policy and strategy research were not very optimistic about the internationalization of the yuan, and thought that it would not work out. Another thing that surprised me at the time was that the U.S. policy makers were generally happy to see the Chinese government was internationalizing RMB.

Because first of all, they believed that RMB could not gain the trust of people around the world, which reflected the deep-rooted institutional myth and ideological bias in their minds. They thought because China’s central bank did not have independence from the government, and the power of the government was not generated by a Western-style election system, how can people trust the sovereign credibility the CCP? Secondly, they believed that once China started its currency internalization, it must liberalize exchange rate fluctuations and capital account controls. With such liberalization, the Chinese development model, the export-oriented development model, would have a big problem and China would not be successful.

In my opinion, the currency credit does not originate from the system at all, but from a country’s strength relative to others. The facts over the past decade or so have made it abundantly clear that the United States, a country that has always boasted of its central bank independence, is actually a joke. The US political divide and polarization, alongside with the swinging of policies as different parties come in power, if compared to China’s relative political unity, the overall stability, and the good policy continuity, which system would be more reassuring to global savers? And from global history, it is true that currency internationalization requires strong fluctuations in the local currency exchange rate, but this does not necessarily mean hurting the real economy.

Let’s look at Germany as the simplest example. During the internationalization process of the German mark, the real economy was not damaged and Germany’s capital account was not completely liberalized. In fact, we need to know that the liberalization of the capital account is not binary – not a yes or no relationship, but a gradual and controlled process. There is a large gray area in the middle. But back around 2013, the expert policy makers in the U.S. also had the blind confidence in their institution and theories. As Chinese, I have no obligation or need to wake up my American friends who are addicted to the ideological dream they have woven.

But in contrast, our Wall Street friends were much more realistic than their Washington counterparts. Because the Wall Street people have always been creating slogans to set the rhythm of the market, and generating concepts to fool other countries, they themselves only see the cold facts and data. That’s why my Wall Street friends usually said in my interviews that if the yuan’s global share reached the level of the euro, it will squeeze the interests out of the Wall Street. These institutions understood this very well. They said that the reason why they could safely pass the subprime crisis and the global financial crisis, why they could play the game of carry trade arbitrage trading, and why they could make global risk-free return alpha earnings, is because their currency, the US dollar, is the global currency. If we really dare to take the bread out of their mouth, then we certainly cannot be friends.

So that was their very frank response. And what was my usual response? The internationalization of the yuan also means the opening of China’s financial market. You can stay in New York to earn the world’s money, or move to Shanghai to earn the world’s money. Earning the dollar or the internationalized yuan, you’re earning money either way. Of course, here I did not point out the real problem. In fact, this ultimately comes down to “whether the party is commanded by a gun, or the party is commanding the gun.” To unite the front, we should unite all the forces that can be united. The ‘three antis and five antis’ are to be done only after the liberation. But also because of this, I think that in the future, the closer our party is to the stage center of the world, the more a proletarian pioneer wants to lead the world market system and a dominantly capitalist world system, the more we must strengthen the ideological construction, organizational construction, and style construction of our party, to ensure that the nature of our party is for the people. We must never forget that our currency RMB is the people’s currency (renminbi) and it should be the currency of the people.

[Title:Digital Currency Brings the Opportunity for RMB Internationalization to “Overtake on the Curve”]

Under normal circumstances, it would be very difficult for an emerging currency to overcome the network effect of traditional mainstream currencies. However, technological changes have brought about the opportunities for a lane change and a strategic window for RMB internationalization. The American company Meta (Facebook) is leading a group of companies to launch a privatized digital currency called Libra, while China’s central bank is pressing ahead with testing the digital yuan. The contrast between the two is very obvious: One is the currency issued by the old hegemon’s private capital group, and the other is issued by sovereign credibility of an emerging power’s central bank. Looking at spring 2021, Facebook’s Libra, after its submission to the U.S. Congress hearing, was dealt with head-on blows. It was then forced to make major adjustments to some underlying logic like the currency pricing mechanism. The China’s central bank’s digital currency, on the other hand, has already entered the actual testing phase in a number of Chinese cities and we can say it’s one step ahead.

I guess the reason why China has accelerated the testing of digital currency in the last two years should have something to do with the process of economic and financial decoupling between China and the U.S. Under the extreme pressure of the Trump administration, China had to use bottom-line thinking. Especially when facing possible risks of financial sanctions, China must have adequate determination and response. An important tool for the U.S. to impose financial sanctions on other countries is the SWIFT system to paralyze their financial payments and credit of specific companies or even the entire economy. I’d like to explain that the SWIFT system is not a payment system, but an interbank messaging system.

Using my analogy earlier, you can see the payment system as the blood vessels, and so what is the messaging system? It is the nerves. This nerve system of the global financial industry does not belong to the United States alone. It is a public product that has gradually evolved from the interactions of the global banking industry. But after the “9.11” in 2011, the United States asked for privileges in the SWIFT system, saying that they needed to use the SWIFT system to find out the financial transactions among terrorists to fight terrorism. So, at that time, out of sympathy or flattery, many countries agreed. But the problem is that “It is easier to invite a god than to send the god away.” In the past 20 years, this privilege, combined with other US advantages in the economic and financial fields, has been abused by the US government as a financial nuclear weapon to monitor and sanction countries. Because the Basel III agreement for the banking industry requires 8% capital adequacy, the banking industry around the world generally contains a leverage ratio round 12, which means that 1 dollar of principal can borrow out 12 dollars. So once any sanctions are posed, there will be a run-on bankruptcy and a chain reaction. The threat of US sanctions is not only credible, but also very terrifying. It’s true for all banking sectors.

On the Iran nuclear issue, it’s clear that Trump unilaterally defaulted, but he brutally threatened to sanction those European countries that insisted on the agreement. Therefore, France and other European countries had to work together to create a new system called INSTEX to bypass the SWIFT system and the U.S. sanctions in order to continue doing business with Iran. But from a practical point of view, it seems that the progress was not too smooth and was difficult.

Against this background, in the summer of 2019, the United States also began to issue several threats to China’s financial industry. This situation has greatly boosted the determination and will of the Chinese policymakers to understand and to learn blockchain technology and push forward the digitalization of RMB. Now that President Biden is in power and the US foreign economic policy is gradually returning to rationality, it has become a national consensus for China to solve the problem where China had its “neck stuck” and to never put itself in such a dangerous position again. Using digital currency to address the risks posed by the USD hegemony and the SWIFT system combined is also an integral part of the solution. Of course, I am afraid that we still need to prove in practice whether digital RMB can eventually help us solve this “stuck neck” problem effectively.

I think besides being able to replace RMB banknotes, if digital RMB can be successfully extended outside of China, we might have a situation of “encircling the cities from the rural areas.” A smartphone will become a bank account for the poor, and the digital currency will mainly substitute the US dollar banknotes and a portion of cryptocurrencies in the global periphery. Because there is the probable scenario where RMB will replace other currencies, there has been a lot of concern in China about causing backlash and opposition from all sides if the process continues, especially from the US side. My estimation is that the RMB digital currency is bound to cause a fierce backlash from the U.S. side, as it is a threat to their national capital. Their most common strategy would be to whip up fire around the world, and they will try to provoke and even intimidate the developing countries.

It is because of the magnitude of this matter that I don’t think we should keep a low profile or conceal our abilities. Do not underestimate how smart they are. So, what should we do? I advocate that we play with open cards, explaining clearly and frankly to the developing countries that the digital RMB is to replace the dollar bills circulating in their countries. We can also promise that we will provide technical resources to help these developing countries build their own digital currency systems and modernize their monetary systems.

Secondly, in an upgraded version of the Belt and Road Initiative, we should link the use of the digital RMB within these countries with our aid investments, their commodity access into the Chinese market, debt relief, etc. More importantly, since a fair competition relationship has been established with the United States, if we want to grab more USD cash in a world dominated by it, we must first give a share of the profits to the numerous developing countries. “It takes a few pairs of shoes before you can catch the wolf.” We should share part of the seigniorage brought to us by other countries using the digital yuan with the people of developing countries in an appropriate way.

[Title:The Prospects of RMB Internationalization and Its Impact]

After tracking and studying the progress of RMB internationalization for more than 10 years, if the Chinese government resolutely follows the current path, I estimate that the RMB will reach a new level in the next 15 years. When we look at the current global currency share, it shows an interesting distribution rule, that is, the winner takes it all. The US dollar accounts for about 55% of the global share. What about euro which takes the second place, about 24%? What is the concept of this 24%? It is equivalent to about 55% of the remaining pie after the dollar takes out its slice. What about the third place? The British pound and Japanese yen together constitute the third place, with a total of less than 10%. In fact, this 10% still accounts for about 55% of the remaining pie, and so on. The other one hundred or two hundred currencies are crammed into that very small slice at the end. As the saying goes, the strong are always strong and the weak are always weak. This power distribution, in fact, stems from the networked nature of the monetary system.

[Title:The Impact of Currency Network Effects on RMB Internalization]

How should we understand this networked feature? When you use the US dollar in foreign trade and investment transactions, it does not necessarily mean you like or trust the US dollar. It’s because your counterparty is also using it. Then under normal circumstances, no one will bother to migrate currencies to other currencies, because the migration would bring great psychological and transaction costs as well as uncertainty. It’s also inconvenient to compare and switch between currencies. Here’s an interesting example. In the early days, trade between China and Russia was done in USD. For importers and exporters, if they directly converted RMB into Russian rubles, the conversion cost may be higher than the total cost of converting RMB into USD and then rubles. Why can the cost of wiring between two currencies be more than the total cost of going to a third currency? That’s because the economic exchange between China and Russia might be less the exchange between China and the United States, or between Russia and the United States. It’s cheap to convert currency pairs that are busily exchanged, and costly for currency pairs that are not actively traded.

If the global financial market charges a handling fee of 1/10,000 for the exchange from RMB to US dollars, and charges 2/10,000 for the exchange from US dollars into rubles, then the direct conversion from RMB to the ruble may cost 1/1000 of the converted amount. Because these two currencies are much less traded. In this way, going through the dollars is the cheapest payment path, which is called the network effect. In fact, this is similar to using WeChat in our daily life. The reason that I use WeChat isn’t my preference, but that my friends have migrated their communication to WeChat. So I have to do so too.

It is precisely because of the strong currency network effect that the advancement of RMB internationalization will not erode the share of the US dollar at the beginning, but erode the shares of other small currencies. We will first take down a group of minions before we’re finally qualified to challenge the big boss. As long as the Chinese government insists on steadily advancing the internationalization of RMB, and with the evolving scale and quality of the Chinese economy, I believe that by 2035, which is the mid-point between the centenary of the founding of the Communist Party and the centenary of the founding of the People’s Republic of China, the share of the RMB may be between 10% and 25%. It is conservatively estimated that it will reach 10%, which is more than double the current share. Well, if the industrial upgrading goes smoothly, if we can change our minds and be willing to accept some trade deficit, and if we are willing to significantly reduce foreign exchange reserves and increase investment and aid to developing countries, then we may be able to reach above 15%. This means that we have taken over some share from the Japanese yen, British pound, and euro, and become the third largest currency in the world after the dollar and the euro. But if we can really hit 25% by 2035, it means that something must have been wrong with the euro. Only if the euro zone has regressed or been divided will the RMB be likely to replace the euro as the second largest currency within 15 years.

Considering that Europe is lagging behind in digital economy and Internet economy, and that the traditional European auto industry is being replaced by electric vehicles, I think this possibility cannot be ruled out. As for making an impact on the dollar’s share, it is estimated that this will happen by the middle of this century. Once the international status of the US dollar collapses, it may bring about a chain of de-leveraging effects in the political economic sense. The comprehensive national strength of the United States will drop not by 30%, but quickly collapse to below 20% of today. That is, it will decrease by one order of magnitude to reach a new political and economic equilibrium. In other words, America’s share in the global GDP will have dropped rapidly from the current 24% to about 5%. This is a plummet of one order of magnitude, not a simple decline by a percentage.

[Title:The Impact of RMB Internationalization on China’s Economy]

So, if RMB becomes the third or second largest currency by 2035, what will the Chinese economy look like?

First of all, due to the internationalization of RMB, the exchange rate of the RMB will rise significantly compared with the current level, which will double the international purchasing power of ordinary Chinese people from the current level. Suppose our economy experiences medium-speed growth in the future, with a stable average annual growth rate between 4% and 5%, and the appreciation of the RMB exchange rate is taken into account, then the scale of China’s economy will undeniably exceed that of the United States and obviously the Eurozone. China will be the undisputed largest economy in the world. With 500 million or more middle-class consumers, China’s domestic consumer market will become the world’s largest market. In extreme situations such as another financial crisis or COVID-19 pandemic, the Chinese government can also send some money to the citizens through quantitative easing without worrying about causing high inflation in China. Because from the perspective of seigniorage, we will be eligible to take a share of the global seigniorage, and we will be able to transfer part of the risks and costs out of our country, and the real tax rate actually borne by the Chinese people will also decrease.

[Title:The Cost of RMB Internationalization]

What we’ve talked about so far are the good impacts of RMB internationalization. But there is no perfect thing under Heaven. The internationalization of the RMB also has its cost. At the moment, the most significant cost is in the labor-intensive export manufacturing industry in the southeast coast. These industries are sensitive to the exchange rate levels and will die out and move away one after another. Some people say that we have a lot of poor people in the Midwest, so can we can move the clothing, footwear, handbags, and toys industries to the Midwest. This view is contrary to the basic principles how the market operates. If you really want to do so, it is doomed to failure. I have made a detailed analysis previously in my show “Zheng Jing Qi Di”, so I won’t repeat myself here.

After the internationalization of the yuan, the manufacturing industry that can stay in China must be high value-added. They either have high value-added segments, such as design, research, and development; or have turned the labor-intensive elements into high value-added ones through artificial intelligence and robotics. In terms of national security and industrial security, some people advocate that part of the low-end industries should still be left maintained. Otherwise, when the Covid-19 pandemic hits again, how are we going to produce respirators and masks by ourselves? Then I propose that the low-end manufacturing industries that is labor-intensive and environmental resource-consuming must be transferred overseas, but they should still be in the hands of Chinese capital and Chinese enterprises. The solution I propose is to build new industrial cities overseas where we have the right of governance is in our hands. I have elaborated on this in the relevant sessions of “Zheng Jing QI Di”.

[Key Takeaways]

1. In the future, RMB internationalization needs a multi-pronged approach, a steady and prudent advancement, and endurance for long-term success.

2. There is a winner-takes-it-all network effect in the global currency market, and RMB internationalization will only be able to challenge the dollar’s share in the middle of this century.

3. Digital RMB will help RMB internationalization to overtake at the curve.

4. The internationalization of RMB will cause the shifts in industries, which is also an inherent requirement of the change in China’s labor structure. We should take actions in accordance with this market principle.

Finally, let’s review the key takeaways.

First, RMB internationalization has already made some achievements. Moving forward, it needs a multi-pronged approach, a steady and prudent advancement, and endurance for long-term success.

Second, there is a winner-takes-it-all network effect and strong inertia in the global currency market. RMB internationalization will first compete for the shares held by the pound, the yen and euro. Only in the middle of this century will it be the time for RMB to challenge the share held by USD.

Third, the digital RMB will help the internationalization of the RMB to overtake at the curve and accelerate the rise of the RMB.

Fourth, the internationalization of RMB will cause the shifts in industries, which is also an inherent requirement of the change in China’s labor structure. We should take actions in accordance with this market principle.

Well, dear audience, in the previous six lectures, we have systematically and comprehensively discussed the relevant theories of “RMB Exchange Rate and RMB Internationalization”. So how can this knowledge help you gain greater profit from the global financial and monetary system? This practical question will be systematically explained in the seventh lecture which is our final lesson.

Knowledge is power; knowledge is money. In my opinion, this statement is not accurate enough. In fact, only knowledge of the minority is power and wealth. Because if the knowledge is commonly shared, the relevant information and perceptions are priced in and reflected in the current price. It will no longer bring us excess profit. It is for this reason that I adopted a higher price strategically for my last lecture, so as to ensure that only a small number of people will get the relevant content and knowledge, thus ensuring the effectiveness. At the same time, the relatively high price paid by this small group of people subsidizes the low price we charge for the first six lectures, allowing as many audiences as possible to obtain the knowledge of the first six lectures. This is basically my strategy, the dumbbell differential pricing strategy, which lowers the low price and heightens the high price.

I welcome those who have the financial means and curiosity to pay a high price to watch this final lecture. Thank you all.