The rise of the RMB will not entirely solve that, but hopefully, it will lead to a world where the global monetary system is less distorted, with less of the friction that we see now, and a greater sharing of the burden and benefits of serving as the world’s currency. Malaysia and the global RMB Finally, how would the globalisation of RMB affect Malaysia? For Malaysia, there is no downside to the RMB becoming an international currency. China is one of our largest trading partners and anything that facilitates the growth of trade and investment flows between the two economies is good. We understand some of the policy challenges China faces and is likely to face as it internationalises its currency. We understand the need for it to adopt a gradual approach and providing itself the space to address any vulnerability that may emerge as a consequence of internationalizing the RMB. But, we also know that as China develops its financial markets and its policy frameworks, greater openness would by synergetic in promoting the further development of its financial system and its economy, and of course the international role of the RMB. Policymakers in Malaysia are fully committed to strengthening our economic and financial ties with China. As far as using RMB for international trade and investment is concerned, we have worked to put the necessary infrastructure in place and continue to improve on it to make it cheaper and more convenient.
The equilibrium real rate (typically labelled r*) is the rate required to match the desired levels of saving and investment. The combination of slower population growth, rising life expectancy and an ageing population acts through multiple channels to push up desired savings and reduce desired investment. A reduction in desired investment also reflects slower productivity growth and, possibly, shifts in the structure of the aggregate production function. In the wake of the global financial crisis, risk appetite may also have diminished, which provides a disincentive to invest, reinforces the precautionary saving motive and encourages a portfolio shift to less risky assets, such as sovereign bonds. Finally, the scars of the crisis have also affected desired savings and desired investment levels: many banks, firms, governments and households have focused on repairing their balance sheets or have been constrained by legacy effects when making investment decisions. Some of these forces may go into reverse over time, especially if we see a more complete recovery from the crisis and if there were improved public policies to cope with demographic trends and better productivity developments (such as the successful, widespread adoption of artificial intelligence, innovations in automation and enhanced infrastructure investment). However, for now the downward pressure on the equilibrium real rate is a significant environmental constraint on the options available to central banks. The low equilibrium real rate has been compounded by weak nominal developments over the last decade.