RMB internationalization, exchange rate volatility, RMB cross-border settlement and China's trade activity—An analysis from the Belt and Road Initiative countries based on the equilibrium model of two sector open economy

A new problem of economic development today is how to effectively promote a double cycle between China and internationality. In this study, a framework of currency internationalization, exchange rate risk and of cross-border settlement was built based on “an equilibrium model of open economy of two markets”. We would like to impel the interactions of this double cycle through RMB internationalization, which improving import and export trade of China and the Belt and Road Initiative countries. Theoretical analysis in this paper reveals that degree of currency internationalization has a great important effect on import and export trade, while exchange rate, exchange rate volatility and cross-border settlement are responsible for the effect. In addition, the solid evidences of import and export trade of China and the Belt and Road Initiative countries indeed show RMB internationalization make a great difference to the import and export trade, which is corresponding with the theoretical analysis very well. Unlike traditional literatures, our results indicate RMB internationalization can increase import and export trade by the peer effect of RMB settlement, rather than by increasing in exchange rate or decreasing in exchange rate risk, and the peer effect is result from the increasing of RMB cross-border settlement. This research can provide some suggestions for steadily promoting the RMB internationalization and accelerating the economic development of the double cycle. © 2022 Systems Engineering Society of China. All rights reserved.