The inclusion of RMB in the SDR basket is the only way for the internationalization of the RMB, but at the same time will cause China to face new challenges and new legal problems. This legal practice process objectively requires that after being included in the SDR basket, the renminbi shall become a qualified SDR basket currency in conformity with International Law, which corresponds with China’s opening-up commitment and international responsibilities. According to the planning for the 12th Five-year Plan period, the RMB exchange rate system reform aims to “improve the RMB exchange rate formation mechanism, and maintain the basic stability of the RMB exchange rate at a rational and balanced level”. What are the connotations and denotations of “the basic stability of the RMB exchange rate”? What are the corresponding obligations required by International Law? As Shanghai acts as a pilot free trade zone for the new financial system architecture, what active measures could be adopted in Shanghai to help China to achieve and balance multiple objectives in coping with the issue of exchange rate? The answers to these questions have an important influence on the government’s current decision-making. On October 21, 2017, the “RMB's Inclusion in the SDR Basket, and Financial Openness and Innovation in Shanghai Free Trade Zone” Seminar, sponsored by Shanghai Academy and Law School of Shanghai University and organized by International Law Research Center of Law School of Shanghai University, was held to discuss the topic issues.
More than 30 experts and scholars from universities, research institutes, and practical departments were invited to the seminar that was held at Room 403 of the administrative building of Baoshan Campus of Shanghai University. The opening ceremony was chaired by Li Ben, Professor of the Law School of Shanghai University and Director of the International Law Research Center of the Law School of Shanghai University; Professor Li Fengzhang, Executive Vice President of the Law School of Shanghai University, delegated by Professor Wen Xueguo, Vice President of Shanghai University and Executive Vice President of Shanghai Academy, delivered brief and warm speeches.
The meeting was divided into two stages, namely speech and discussion. The first stage was chaired by Professor Li Ben. Gong Baihua, Professor of the Law School of Fudan University and President of the International Law Research Board of Shanghai Law Society, delivered a report entitled Free Trade Pilot Area and Free Transfer of Investment Return, and pointed out in the report that the RMB's Inclusion in the SDR Basket is closely correlated with the financial reform of free trade zones. All of the three schemes of Shanghai Free Trade Zone involved the content about investors’ free transfer of their investment return, and put forward the concepts of investment and trade facilitation and free currency exchange, which, however, have not been put into practice. The Report to the 19th CPC National Congress also proposed to issue high-level trade and investment liberalization and facilitation policies. The financial innovation reform must focus on both openness and controllability, but it is crucial to balance the two. During free transfer of investment, the concept of investment must be first defined; and then transferable and nontransferable investments must be explicitly distinguished. By reference to the integrative definition plus the negative list in the American template, as the investment scope has become broader and extended to the financial field, there is an integrative point between the investment law and the financial law. How to control the churning of derivative trades in a safe manner is an important issue at present. The next point is about conditions and restrictions of free transfer of investment. Currently, with strict capital control in China, what are the differences between freely convertible currency and freely usable currency? What is the content of transfer? Which country’s exchange rate is used in transfer? Is the time of transfer coincident? Which law is the basis for whether the transfer is legal? Is there any exception for the transfer? All of these questions are controversial. Meanwhile, Professor Gong also put forward governance opinions, ideas and schemes for how to solve disputes, and how the CBRC and the central bank cope with the transfer made by so-called high-tech enterprises in investment, by means of arbitration.
Professor Li Ben of the International Law Research Center of the Law School of Shanghai University pointed out in a report entitled the “‘Irrevocable’ Obligations for the RMB’s Inclusion in the SDR Basket and the Issue of Exchange Rate Sovereignty that, compared with the review standard for the SDR currency basket, the FU standard is more dynamic. What are new indicators in the future? What is the directional review standard in the future? How to constantly conform to the standard? These are the first questions to be explored after the inclusion of the RMB in the SDR basket. According to Professor Li Ben, the inclusion of the RMB in the SDR is a type of implicit sovereignty transfer. After the inclusion of the RMB in the SDR basket, how could the RMB gain a firm foothold in the competition with reserve currencies? After being included in the SDR basket, the RMB’s relevant missions and obligations must not be more obviously revocable than current levels. Revocation means that the RMB may no longer conform to the currency standard for the SDR basket, and then has the risk of being quit. The “irrevocable obligations” means more consciously consistent with the SDR’s system design. Therefore, China’s corresponding monetary policy shall constantly conform to the developing standard of “freely usable currency”, and actively get close to the standard for “reserve assets”, which means more “market-oriented responsibilities”. To gain a firm foothold among SDR basket currencies, China must maintain the basic stability of the exchange rate. Such stability is a relative and elastic stability in dynamic development, and this stability standard is consistent with the IMF’s review requirements. Currently, it is the first priority to ensure domestic financial stability, which is in line with China’s requirements for a stable exchange rate. To sum up, it is a problem that we must resolve to find the balance point between the exchange rate marketization and financial stability. After the inclusion of the RMB in the SDR basket, the paths to practicing the “irrevocable obligations” include the following main points: 1. At the level of International Law, the monetary sovereignty under the framework of the IMF shall never be abandoned, and the sovereignty transfer shall be agreed by all parties under the frame of International Law; 2. Subsequent to the “August 11 exchange rate reform”, the central parity rate quotation mechanism shall be continuously improved; 3. Efforts shall be made to get close to the "reserve asset" standard, establish RMB clearing banks and foreign exchange futures transaction platforms by strengthening currency swaps, promote bond market development and take other moves together, gradually increase the RMB’s attribute as “reserve assets”, support cross-border financial services through the Shanghai Free Trade Zone, and gradually establish and improve capital account convertibility pilot programs.
Professor Ni Shoubin, Director of the School of Law of Shanghai University of International Business and Trade, pointed out in his report entitled the Several Legal Issues of Exchange Rate Derivative Regulations and Exchange Rate Stability that, as the fluctuations of the domestic financial market are closely correlated with derivatives, exchange rate derivative-related laws and regulations shall be strengthened after the inclusion of the RMB in the SDR basket, in order to stabilize the exchange rate. In free trade zones, efforts shall be made to implement the monetary policy reform and marketization, reduce government intervention, and promote financing facilities and the RMB’s international flow. However, the exchange rate pricing power could not be transferred, while the central parity rate quotation system reform must be improved. In response to the U.S.’ boundary-breaking behaviors in handling some cases involving exchange rate with the long arm jurisdiction, we must think about whether or not there are effective solutions, while condemning the behaviors; in addition, efforts must also be made to strengthen the notification coordination mechanism, and promote transnational supervision and cooperation.
According to the comments of Professor He Li of the School of Law of Fudan University, Professor Gong Baihua’s ideas, that whether foreign investment return could be freely transferred requires proper handling of control and openness, are very timely and useful. Professor He Li agreed with Professor Li Ben’s opinions about the standard for directional inclusion of the RMB in the SDR basket and the exchange rate sovereignty transfer, and put forward the importance of financial stability. In response to the issue of exchange rate derivative regulations and stability mentioned by Professor Ni Shoubin, Professor He Li believed that it is a threshold required for RMB internationalization. Professor Yan Weijun of the School of Law of Shanghai International Studies University agreed with Professor Li Ben’s opinions that the inclusion of the RMB in the SDR basket must be practical, as well as Li’s academic viewpoints about the practice path of “irrevocable obligations”.
Subsequently, the second phase of the academic report was chaired by Professor Gong Baihua of Fudan University, and the theme was highlighted by his witty lectures. Wang Haifeng, Research Fellow of Institute of Law Institute of Shanghai Academy of Social Sciences, Professor He Li of the School of Law of Fudan University, Professor Zhang Shengcui of the School of Law of Shanghai University of Finance and Economics, Professor Shen Qiuming of the School of Law of Shanghai Maritime University, Associate Professor Tao Lifeng of the School of Law of Shanghai University of International Business and Economics, Li Zhiqiang, Director of Jin Mao Partners, Professor Chen Jianping and Associate Professor Li Lixin of our School of Law, and other scholars gave keynote speeches or comments around “the RMB's Inclusion in the SDR Basket and Financial Openness and Innovation in Shanghai Free Trade Zone”, and put forward ideas and suggestions for current theoretical and practical issues from the perspective of laws.
The closing ceremony of the warm and wonderful seminar was chaired by Professor He Li, and Professor Li Ben delivered the closing speech. This seminar is a high-level legal research exchange meeting organized for coping with relevant legal issues after China's accession to the SDR currency basket. The seminar made in-depth and effective discussions in a vivid form, with good achievements.
(By Cooperation Division)
