The Development of a RMB Internationalization Potential Index

Existent indices for measuring RMB internationalization degree only reflect past and current situation of RMB's international use, and don't consider the fact that the financial openness of China is still considerably restricted. This paper aims at building a forward-looking index to measure RMB's potential in becoming internationalized currency, under the assumption that China will eventually unleash its control over financial openness. The compilation methodology relies on information provided by precedent currencies that have experienced an internationalization process historically to extract the relationship between underlying factors and internationalization potential. Calculation results show that RMB's internationalization potential surpassed Yen's in 2006, and has in 2012 attained the peak value Yen reached in 1991.