The Interaction Between the Choice of Currency Settlement and RMB Monetary policy

Abstract

It is been 12 years since China began to settle cross-border trade in RMB in 2009. It is of great significance to analyze the interactive relationship between the choice of monetary pricing and settlement and monetary policy in China. Based on the latest data from the first quarter of 2009 to 2021, this paper studies the interaction between the use of RMB and the interest rate policy and exchange rate policy in RMB monetary policy. Through VAR model, ADF test, cointegration test and Granger causality test, it is concluded that RMB denomination and settlement (CRM) is the Granger cause of broad money supply (M2). Finally, this paper puts forward three suggestions from the perspective of monetary policy makers, the most important of which is that China needs to improve the exchange rate system and monetary policy interest rate transmission mechanism to further promote the internationalization of RMB.