The policy of Pilot RMB settlement in cross-border trade was adopted to face the international economic crisis and for the purpose of improving the PRC exporting. On Dec. 24, 2008, the State Council Executive Meeting decided to adopt Pilot RMB settlement in cross-border trade between Guangdong, Yangtze River Delta and Hong Kong and Macao. On Apr. 8, 2009, it was decided that Pilot RMB settlement in cross-border trade may be adopted in Shanghai, Guangzhou, Shenzhen, Zhuhai and Dongguan. In July, the Bank of China and the Communication Bank of China succeeded in some Pilot RMB settlement in cross-border trade in Shanghai, Guangzhou and Shenzhen respectively. By testing the policy, system, operation procedures, IT system and training, the People’s Bank of China, the Ministry of Finance, the Ministry of Commerce, the General Administration of Customs, the State Administration of Taxation and the China Banking Regulatory Commission jointly issued the Measures for the Administration of Pilot RMB Settlement in Cross-border Trade.

On July 6, the first transaction with Pilot RMB settlement in cross-border trade was completed, which means RMB has changed its role from currency of price to settlement currency and Pilot RMB settlement in cross-border trade has come into actual operation after almost a half year’s discussion. It is the definite tendency to realize RMB internationalization for the uprising China. Pilot RMB settlement in cross-border trade indicates that PRC moves faster and faster in the field of RMB internationalization.

Unusual Significance and Long Influence

Pilot RMB settlement in cross-border trade does not mean the reform in the form but bringing actual benefits to PRC macro-control and trading, especially in the period of economic crisis, can help realize RMB regionalization and move towards internationalization in the end.

From the micro-level, RMB settlement can help enterprises avoid foreign exchange risks, simplified the procedures, reduce transaction costs and foreign exchange losses. Usually the trade between PRC enterprises and overseas enterprises including those in the US, Europe and Japan are settled on the basis of USD, EUR and Japanese Yen and foreign exchange losses incurred therefrom are mainly borne by the PRC enterprises. Take USD as an example, due to the economic crisis, the great fluctuations of USD has made the PRC relevant foreign trading companies suffer a lot comparatively. However, it the cross-border trade is settled in RMB, such problem can be solved. Secondly, it may help the enterprise fix the cost and profit and take initiative in the long term financial planning. Thirdly, to the pilot enterprises, RMB settlement in cross-border trade means another stable monetary choice. They can do international trading in low cost and high efficiency. Lastly, if overseas enterprises can choose RMB as the settlement currency, it will help PRC enterprises further enlarge market and have a big say in contract negotiation.

From the perspective of Macro-level, RMB settlement in cross-border trade can firstly do well to PRC foreign economy, trading and investment, lessen the pressure of the downturn of foreign trading and encourage PRC economy to integrate with the world economy. Secondly, it can further improve the formation mechanism of RMB foreign exchange rate. RMB is used in the range of region as international settlement and has a standard for reference on a wider range and newer perspective, which is helpful in the formation mechanism of RMB foreign exchange rate. Thirdly, it will promote the multipolarization of the international monetary system. Using RMB in the international settlement can improve the international role of RMB, change the USD-centered international monetary system little by little and release its disadvantages and side effects. Fourthly, it promotes the development and opening of PRC finance and strengthens the PRC’s capability of financial resources distribution in international market. Fifthly, it can promote Shanghai’s construction as international financial center. With the development of the RMB in the international settlement, Shanghai might become the regional center for RMB settlement step by step and stimulate further development of other financial roles so as to establish the role of international financial center for Shanghai.

Great Challenge and Long Distance

To adopt RMB settlement in cross-border trade shows the global market’s confidence to the PRC’s economy. However, there are both opportunities and challenges during the process of RMB internationalization. It can not be realized over one night and still has a long way to go.

The pilot RMB settlement in cross-border trade is organized by the People’s Bank of China, the Ministry of Finance, the Ministry of Commerce, the General Administration of Customs, the State Administration of Taxation and the China Banking Regulatory Commission together. Since RMB settlement in cross-border trade involves many problems which require the coordination between these government agencies, it will be a great test for such coordination and efficiency of government agencies.

To make RMB become a real international currency requires material reform based on the needs instead of plan based on one’s sole willingness. The globalization of RMB nowadays is still proceeding under the structure of current international economic order and international monetary system. No matter legal system or economic system, it is still immature to achieve the structure to support the globalization of RMB. To achieve a kind of currency which is widely accepted by the international community, it not only needs strong economic basis, but the general acceptance on its own culture, value and governmental trust by the international community.

It will be a long way to go to achieve globalization of RMB and make the international community accept RMB. To realize globalization of RMB, the PRC has to wade across the stream by feeling the way and shall not be hasty. There still exist a lot of problems in the PRC current financial market regulatory system and market economy legal environment. Therefore, we shall clearly understand our reality, take necessary research and investigation and promote the globalization of the RMB steadily based on real situation.