He made this point clear in his Report as follows: “The danger that a government will make use of the power of a central bank to overexpand credit is a real one and might appear a strong argument against having a central bank at all. But, as already indicated, if a government wishes to engage in the irresponsible creation of money, it can do so without a central bank. Paper money has come to stay. The only real safeguard against its abuse is responsible government”. So the blame should not go to Exter. It is the absence of responsible governments that would erode the value of money through excessive creation of central bank credit. An example for such irresponsibility could be found in a reported statement by Robert Mugabe, President of Zimbabwe that, if money is not found for projects, he would print the same, at a time when inflation was rising at more than 4500 % in his country. (Time, 13 Aug 2007) Elimination of the seigniorage from the books of accounts The issue of paper based fiat money at a fractional cost of the face value has enabled sovereigns to earn a substantial profit known as the seigniorage. Since there is no requirement for the issuer to back such money with an equivalent reserve, there is no limit to the issue of money by a sovereign.
There is a deep hunger internationally for Chinese consumers, Chinese exports, Chinese assets and of course, the Chinese currency. While the USD was at one time supported by its gold backing, the RMB today is backed by China’s huge foreign exchange reserves. Confidence in the currency is further enhanced by expectations of conditions in China remaining supportive of a strong currency. The main precondition on which China does not do well is in the stage of development and readiness of its financial system and policy frameworks. These challenges are not insurmountable but they are big enough to make Chinese policymakers adopt a gradual and sequenced approach to RMB internationalisation. They are big enough that premature liberalisation could create significant risks to macroeconomic and financial stability. The challenge for Chinese policymakers is to develop the domestic financial system to a level where integration with the global financial system would not lead to significant vulnerabilities. Therefore, the state of the financial system will be a key determinant of the extent to which policymakers are willing to liberalise and open their system, and consequently, will also be a key determinant of the extent and pace of RMB  2  BIS central bankers’ speeches  internationalisation. The global status of the RMB is closely linked to the global status of the Chinese financial system. Ambitious reforms could expedite RMB internationalisation. On the issue of being a global exporter of capital, China is certainly that.