1.4 The level of RMB internationalization since 2010

1.4.1 The performance of RMB internationalization index

According to the above compilation methods of the RMB internationalization index,we calculated that RMB internationalization index of the fourth quarter of 2011 was 0.45,an increase of one time over the last year's same period.The RMB internationalization index from the first quarter of 2010 to the fourth quarter of 2011 is shown in Figure 1—2.

Figure 1—2 RMB internationalization index

Since the start of RMB cross—border trade settlement in 2009,the process of internationalization of the RMB is only a short period of two years.Though the level of internationalization of the RMB is 0.45,which shows the international use of the RMB is still very low,and its functions of international currency is negligible.It also indicates that internationalization of the RMB has successfully achieved the breakthrough.

In 2010,RMB internationalization index saw a sharp increase,meaning that internationalization of the RMB develops rapidly.And in 2011,the RMB internationalization index kept on going,especially the index of second quarter that showed a larger increase than that of the first quarter.From early 2010 to late 2011,RMB internationalization index rose from 0.02 to 0.45,which was an increase of more than 20 times,reflecting international community and international economic entities' considerable degree of recognition of the performance of RMB functioning as an international currency.

1.4.2 The analysis of the variation of RMB internationalization index

The main reason for the rapid increase of RMB internationalization index is that RMB plays an increasingly important pricing and payment role in trade and financial transactions.

Referred to Figure 1—3, RMB has a 145% growth in the share of global trade settlement in 2010. Although the absolute value of the number in 2011 is continuing to improve, its growth rate in 2010 dropped significantly. It had a negative growth of —6.46% in the fourth quarter. However, the indicators have an increase of 15.62% in 2011.

Figure 1—3 Growth rate of RMB pricing and payment function parameter

The main reason of RMB weak pricing and payment function in international capital and finance is that there are more controls over RMB capital account,and necessary approvals are needed in issues of RMB international bonds,loans to foreign countries and overseas direct investments.The use of RMB in international financial transactions expanded rapidly in 2010,and the global proportion of RMB capital and financial transactions had more than two percent increase.Since after the fourth quarter of 2010,the proportion of RMB used in global capital and financial transactions has shown nearly the same va—riation as the proportion of RMB used in trade settlement,which saw seasonal variation. In the fourth quarter of 2011,the proportion increased to 52.27%.The average annual growth rate was 34.68%.

With regard to international financial pricing and payment function of the RMB,the scale of RMB direct investment is too small,which is almost negligible. RMB bonds and overseas credits have great influence on the change of this function. As shown in Figure 1—4, RMB overseas credits, RMB international bonds and notes were in rapid growth in 2010, reaching the peaks at 104% and 202% in the fourth quarter. In 2011, accelerations of these began to decline in the first quarter and rebounded in the second quarter. The accelerations reduce to about 10% in the third quarter. In the fourth quarter of 2011, the amount of RMB international bonds and notes issued plummeted over 45%, which led the global percentage declined 33%. Comparatively, global percentage of RMB foreign loans had an equable growth, average growth rate reached 26% in each quarter of 2011.

Figure 1—4 Growth rate of RMB international financial parameter

In a word, the pilot project of RMB internationalization began in 2009, while some base for RMB internationalization index started with low levels so that the index presented a geometric growth in each quarter of 2010, increased 10.5 times in whole year. RMB internationalization maintained the growth momentum, although at a slow pace, got a 73% increase in 2011.