May 2014 Volume 1, Number 1 International Monetary Review October 2015, Vol. 2, No. 4 International Monetary Institute RMB Internationalization Report 2015 Press Release Yaseen Anwar One Belt One Road, Gateway to the Future Juan Carlos Martinez Oliva A New Approach to the Estimation of Equilibrium Exchange Rates among East-Asian Economies Alicia Garcia-Herrero and Xia Le RMB Bilateral Swap Agreements: How China Chooses its Partners? Special Column on Chinese Economy Instability in China by Steve H. Hanke China Turns to "Real Assets" by David Marsh Reflections on China's Growth by Juan Carlos Martinez Oliva 1 ADVISORY BOARD Edmond Alphandery Yaseen Anwar International Monetary Steve H. Hanke Review RobertIMI A. Mundell Li Ruogu 李若谷 Li Yang 李 扬 Pan Gongsheng 潘功胜 Su Ning 苏 宁 Wang Zhaoxing 王兆星 Xia Bin 夏 斌 Joseph C.K. Yam 任志刚 ACADEMIC COMMITTEE Introduction to the International Chairman Monetary Institute ( IMI ) Chen Yulu 陈雨露 (In alphabetical order of last name) Ben Shenglin 贲圣林 Cao Tong 曹 彤 Established on December 20, 2009, IMI is a non- Chen Weidong 陈卫东 Ding Zhijie 丁志杰 profit academic institution affiliated to China Robert Elsen Financial Policy Research Center and the School of Tomoyuki Fukumoto Guo Qingwang 郭庆旺 Finance of Renmin University. Hu Xuehao 胡学好 Il Houng Lee 李一衡 Ji Zhihong 纪志宏 Following the "general theory of macro-finance", Jiao Jinpu 焦瑾璞 IMI aims to become a world-class think tank, Rainer Klump Liu Jun 刘 珺 focusing on the studies of international finance, in Lu Lei 陆 磊 particular the international monetary system and David Marsh Juan Carlos Martinez Oliva RMB internationalization. Despite its relatively short Herbert Poenisch history so far, IMI has established itself as a leading Qu Qiang 瞿 强 Alain Raes research institution and important forum, where Alfred Schipke industry leaders, policy makers and academic experts Anoop Singh Wanda Tseng 曾颂华 from home and abroad share their insights and Tu Yonghong 涂永红 expertise. Wang Yongli 王永利 Wei Benhua 魏本华 Xuan Changneng 宣昌能 Zhang Jie 张 杰 Zhang Xiaopu 张晓朴 Zhang Zhixiang 张之骧 Zhao Haiying 赵海英 Zhao Xijun 赵锡军 Zhou Daoxu 周道许 EXECUTIVE TEAM Director Zhang Jie 张 杰 Cao Tong 曹 彤 Executive Director Ben Shenglin 贲圣林 Weibo WeChat Deputy Director Website: International Monetary Insight Tu Yonghong2 涂永红 www.imi.org.cn Song Ke 宋 科 May 2014 Volume 1, Number 1 Yaseen Anwar Former Governor, Central Bank of Pakistan Senior Advisor, ICBC Singapore Member of IMI Advisory Board Mr. Yaseen Anwar's international banking and regulatory experience spans 40 years and in early 2014, he retired as the Governor of the State Bank of Pakistan (Central Bank) where he spent seven years. At the Central Bank he negotiated and signed the country's first Currency Swap Agreements with China and Turkey and in 2012 became only the 7th Central Bank to sign an Agency Agreement with the Peoples Bank of China to invest in local Government Bonds. As Governor, he had oversight of over 40 banks, impacted Monetary Policy, and elevated the Branch-less Banking model/strategy for Financial Inclusion. Prior to the Central Bank, he worked in New York, London, Paris, and Egypt with JPMorganChase, Bank of America, and Merrill Lynch in various senior capacities that covered Corporate Banking, Syndications, M&A, Project Finance, Alternative Investments, Export Finance, and Payments. His various Board appointments have included the American Turkish Society, American Middle East Association, U.S. Pakistan Economic Council, United National Bank Ltd. U.K., Chairman of Eco Trade Development Bank, Turkey, and a member of the Council of Foreign Relations. He is a graduate of the Wharton School at the University of Pennsylvania. 3 International Monetary IMI Review This issue is proud to present YASEEN ANWAR Former Governor, Central Bank of Pakistan Senior Advisor, ICBC Singapore Member of IMI Advisory Board 4 May 2014 Volume 1, Number 1 This issue is proud to present CONTENTS Feature One Belt One Road, Gateway to the Future Yaseen Anwar 1 In Brief Research Review by IMI Advisory Board 7 Research Review by IMI Academic Committee 9 Research Report RMB Internationalization Report 2015 (Press Release) International Monetary Institute 19 Special Column on Chinese Economy Instability in China Steve H. Hanke 69 China Turns to "Real Assets" David Marsh 73 Reflections on China's Growth Juan Carlos Martinez Oliva 75 Working Paper A New Approach to the Estimation of Equilibrium Exchange Rates among East-Asian Economies Juan Carlos Martinez Oliva 78 RMB Bilateral Swap Agreements: How China Chooses its Partners? Alicia Garcia-Herrero and Xia Le 104 IMI News 121 Former Governor, Central Bank of Pakistan Senior Advisor, ICBC Singapore Member of IMI Advisory Board 5 International Monetary IMI Review 6 International Monetary Review October 2015, Vol. 2, No. 4 Feature One Belt One Road, Gateway To The Future＊ By YASEEN ANWAR Distinguished guests, ladies and gentlemen: In 2010 at the Eurasia Summit in Urumqi and as a guest of the Peoples Bank of China (PBOC), I gave a speech promoting the 21st Century Silk Route. Five years later, and coincidentally in the same month, that initiative is well on its way and I am delighted and honoured to be a part of this conference and initiative that I have supported since then. The genesis of modern global economic development was built on the foundations of Trade. The evolution of Trade transactions as we know it today was founded in Renaissance Italy by the Medicis when they set up the first Trade representative office for Acceptance Financing in Barcelona to support their Trading posts of Genoa and Venice, the then hubs of Trade. Life was much simpler then. The Western Hemisphere had not been discovered and the global economy at the time was not vulnerable to systemic shocks. Today the world‘s economy is generally in a state of malaise in the aftermath of the Global Financial Crisis (GFC) that started in 2008. It has created an existential crisis in Europe with its sovereign debt crisis and painful austerity measures exposing underlying contradictions in the European Union that has become increasingly fragmented. The United States as the largest economy, is itself struggling to stimulate aggregate demand, reduce unemployment, and strengthen its Post World War II institutions in an effort to ensure retention of its fragile global economic supremacy. Notwithstanding the economic tremors in recent years, we find ourselves in the midst of a massive process of change as the global economy realizes that Asia, led by China as the second largest economy in the world, will now shape this planet‘s economic future. The debt problems facing the leading members of the OECD have not only led to a deep recession, but have also manifested into a much more ＊ Speech on the China-Pakistan Economic Corridor (CPEC) Forum held in the City of Karamay in China on August 11, 2015. 1 serious economic problem than the Great Recession witnessed in 2007-2008. Asia must adapt and assert itself for its rightful role in this changing environment. Before I delve into the future course of the One Belt, One Road initiative and its impact on the global economic landscape, I would like to highlight the following seismic shifts we have recently witnessed: 1. 25 years ago and under the current multi-currency Reserve Management System, 65% of global Reserves were held by Developed countries and 35% by Emerging Markets (EM). Now the position is reversed with 67% of the world reserves held by Emerging Market economies, reflecting the economic role of Asia in general and China in particular. 2. According to SWIFT which monitors currency flows, the RMB in 2014 overtook the EURO to become the second most actively used currency to settle Trade Finance payments after the U.S. Dollar, and the 5th largest Payment settlement currency in the world. Shortly to become the 4th. 3. More than 50 Central Banks and Sovereign Wealth Funds have signed Agency Agreements with PBOC to invest in the Chinese onshore Bond market, evidencing confidence and trust in the RMB on a global basis. The State Bank of Pakistan was the 7th Central Bank to execute such an agreement in 2012 and activated it in 2013 to ease its balance of payments pressures faced at the time. China helped Pakistan during a difficult period. The UK government initiated such an investment in October 2014. While the above are only a few of the milestones driven by China in an effort to resolve global imbalances, lower capital flows, and FX fluctuations, we still face vulnerabilities towards restoring Public Trust and confidence in the International Monetary System in the wake of the Global Financial Crisis. Notwithstanding the GFC, the recent steps taken are a clear indication that China is taking the right steps. The renewed emphasis on its Western borders indicates the intent to revive the ancient Silk Route which once passed through Urumqi that will have far reaching and positive long term implications emanating from trade in the region with an illustrious history. In the context of the current global challenges, perhaps this direction will help facilitate the needed decoupling from OECD markets so that Asia is not just a factory to the world, but also generates its own demand for the products it creates. Global imbalances need to be reduced and new markets in Asia need not only to be developed, but also to be integrated and connected. The downside of this integration is the vulnerability to external shocks by events taking place in far-away 2 October 2015 Vol. 2, No. 4 markets. We must prepare for such events. Given the seriousness of the debt problems facing some of the developed economies, many developing countries have already faced a fall in exports, experienced speculative capital flows replacing more stable FDI, and Trade Financing choking up.