PBOC Should Practice Simple Central Banking To Help RMB Internationalization

There has been recent hype on the rise of the Chinese Renminbi (RMB), since the Chinese membership of the World Trade Organization. After the crises that have been dominating the global financial architecture since 2008, whenever there is a funding shortage anywhere around the world, Chinese cash injection or financial aid seems like an alternative. From Greece to Iceland to Argentina, many countries expect further investment from China. A similar trend surrounds so-called Belt countries around ancient and modern silk roads from maritime to desert lines. This paper argues that there are three reasons for this unique phenomenon. First, China is an emerging country that managed to develop without an external program assisted by the IMF or the like. This is not a debt, but reserve accumulating growth. Second, China managed this growth without any energy or resource bottleneck. Just the opposite, there is now a massive capacity surplus. Third, China is in a very unique position to export capital even it is still an emerging country. This comes from the advantage of huge reserve accumulation in addition to massive direct or indirect RMB liquidity creation opportunities in the form of credits to capital exporting Chinese companies. In this paper, we argue that such a potential may only be realized through simplification of central banking by respecting what backs a fiat currency and how simple it may be possible to manage RMB liquidity transmission without either creating domestic inflation or leading to global liquidity bottlenecks.