Monthly Archives: October 2022

RMB internationalization indicators are generally positive

International Business News – The People’s Bank of China recently released the “RMB Internationalization Report 2022”, which shows that the indicators of RMB internationalization are generally positive, with RMB’s payment currency function steadily improving, its investment and financing currency function further deepening, its reserve currency function rising and its denomination currency function gradually strengthening. The report also shows that the opening of China’s financial market continues to advance and RMB assets remain highly attractive to global investors.

Third-party data also prove that RMB internationalization is steadily moving forward. According to the Society for Worldwide Interbank Financial Telecommunication (SWIFT), the RMB’s share of international payments will increase to 2.7% by December 2021, surpassing the Japanese yen to become the world’s fourth payment currency. And data released by the International Monetary Fund (IMF) on the currency composition of official foreign exchange reserves shows that the yuan’s share of global foreign exchange reserves reached 2.88% in the first quarter of 2022, ranking fifth among major reserve currencies.

Normally, the U.S. dollar is the main payment currency in international trade. However, the U.S. sanctions against other countries at every turn have made many countries wary, including India and Russia.

For example, Indian companies are using more Asian currencies to pay for their coal imports from Russia, bypassing the U.S. dollar and reducing the risk associated with violating Western sanctions against Russia, according to Reuters. In July, India’s coal imports from Russia rose sharply, with 31 percent of the non-dollar payments made in yuan and less than a quarter in euros, a trade source said.

Since the outbreak of the Russia-Ukraine conflict, Russia has also been consciously “de-dollarizing” and looking for alternative currencies due to U.S. sanctions. Russia’s Kommersant website reported on Sept. 23 that August statistics released by SWIFT showed that Russia ranked third in the world in terms of offshore payments in yuan, ahead of Hong Kong, China and the United Kingdom.

According to the report, the yuan is the preferred alternative currency to the dollar and euro for Russian banks in the process of “de-foreignization” of the industry. Russian Deputy Finance Minister Alexei Moiseyev said this preference is due to strong demand for the Chinese currency and a stable exchange rate. Director of the First Asian Department of the Russian Foreign Ministry Georgiy Zinoviev said that the share of Russian-Chinese local currency settlements is growing and the demand and volume of transactions in the yuan on the exchange is also increasing.

At the same time, the RMB is being used as a reserve currency by an increasing number of countries. With geopolitical conflicts threatening to erode the dollar’s dominance, central banks are beginning to seek to diversify their foreign exchange reserves with the yuan.

A July report on the Financial Times website noted that concerns about high inflation in the U.S. and the Federal Reserve’s efforts to combat it have also put the dollar under short-term pressure. The survey showed that reserve managers are looking for other alternative assets, such as securities, green lending and inflation-protected bonds, out of concern about holding dollar-denominated assets. Nearly half of the respondents said their portfolios are more diversified than last year.

While the dollar remains the world’s number one reserve currency, its lead has declined in recent years. Global central banks have reduced the dollar’s share of their foreign exchange reserves over the past 20 years, with a quarter of that reduction going to the yuan, according to IMF research released earlier this year.

Experts attribute the share growth to the rise of the Chinese economy and the internationalization of the yuan, the Russia Today TV website reports. They say the yuan’s share growth will also accelerate this year against the backdrop of mutual sanctions between Russia and the West and global financial chaos.

A new study shows that China’s dominance in global trade is increasing the yuan’s share of global central banks’ foreign exchange reserves, as also reported on Bloomberg News’ website in July. If China’s trade and yuan settlements continue to increase, the yuan’s share of reserves will grow, the study’s authors argue.

Experts say that as China’s economic power grows and the yuan’s influence increases with each passing day, the increase in the yuan’s share and size is an irreversible trend.

RMB becomes the 4th payment currency in the world

International Business News – According to the “RMB Internationalization Report 2022” released by the People’s Bank of China, the RMB’s international payment share improved to 2.7% in December 2021, overtaking the Japanese yen to become the world’s fourth payment currency, and further increased to 3.2% in January 2022, a record high.

Since 2021, RMB cross-border receipts and payments have continued to grow from a high base in the previous year. 2021, the total amount of RMB cross-border receipts and payments by banks on behalf of customers was RMB 36.6 trillion, up 29.0% year-on-year and a record high. RMB cross-border payments and receipts were generally balanced, with a cumulative net inflow of RMB 404.47 billion for the year. According to the Society for Worldwide Interbank Financial Telecommunication (SWIFT), the RMB’s share of international payments increased to 2.7% in December 2021, overtaking the Japanese yen to become the world’s fourth payment currency, and further increased to 3.2% in January 2022, a record high. Currency Composition of Official Foreign Exchange Reserves (COFER) data released by the International Monetary Fund (IMF) show that the RMB’s share of global foreign exchange reserves reached 2.88% in the first quarter of 2022, up 1.8 percentage points from 2016 when the RMB first joined the Special Drawing Rights (SDR) currency basket, ranking fifth among major reserve currencies.In May 2022, the International Monetary Fund (IMF) raised the RMB’s weighting in the Special Drawing Rights (SDR) from 10.92% to 12.28%, reflecting recognition of the increased degree of free access to the RMB.

The volume of cross-border RMB settlement related to the real economy maintained rapid growth, with areas such as bulk commodities and cross-border e-commerce becoming new growth points, and cross-border two-way investment activities continued to be active. The RMB exchange rate generally showed a two-way fluctuation trend, and the endogenous demand of market players to use RMB to hedge exchange rate risks gradually grew. The basic system of RMB cross-border investment and financing, transaction settlement, etc. continues to be improved, and the ability to serve the real economy continues to be enhanced.

The opening up of China’s financial market continues to advance, RMB assets remain highly attractive to global investors, and there is an overall net inflow of RMB cross-border receipts and payments under securities investment. By the end of 2021, the total amount of domestic RMB stocks, bonds, loans and deposits held by foreign entities was RMB 10.83 trillion, up 20.5% year-on-year. The offshore RMB market gradually picked up and transactions became more active. By the end of 2021, RMB deposits in major offshore markets were close to RMB 1.50 trillion.

RMB depreciates against USD

International Business News – After two years, the RMB exchange rate is back below 6.90 yuan.

On the morning of August 29, the RMB’s mid-price against the USD was at 6.8698, down 212 basis points from the previous trading day. The onshore and offshore RMB/USD exchange rates both fell below the 6.90 mark, making people wonder if it will break 7 if it continues.

Why did the dollar strengthen? Julius Investment Advisory senior investment advisor Xie Logistics said in an interview with the International Business Times reporter, first, the dollar is strong relative to the euro and the yen strong, the Bank of Japan continued quantitative easing led to the yen depreciation trend is obvious, the Russia-Ukraine conflict, the eurozone capital outflow, the United States plays the role of a safe haven for funds. The second is the interest rate hike factor. The Fed’s tightening monetary policy has made the US dollar appear more scarce in the global market, prompting the dollar to strengthen.

Hongze Capital founding partner and chief strategist Xu Yaxin told the International Business Times that, on the one hand, the impact of the Russian-Ukrainian geopolitical crisis in the first half of the year, high energy prices, which in turn pushed inflation higher, with the Federal Reserve as the main central banks have opened the interest rate hike cycle. Successive interest rate hikes to market expectations of the future economy into recession is expected to heat up, the dollar as a safe-haven assets continue to increase in attractiveness. On the other hand, the Fed and other central banks to widen the interest rate differential, many Fed officials frequently released hawkish remarks, while non-US currencies euro, pound and yen continued to weaken, disguised to enhance the dollar upward momentum.

“The recent hawkish remarks from the Fed’s Powell, stressing that it will continue to tighten monetary policy to reach the goal of inflation control, gave great support to the short-term strength of the dollar.” Chen Yucheng, a senior investment advisor at Jufeng Investment Consulting, told International Business Daily that the RMB exchange rate, as a relative price, depends on the strength of demand for the RMB versus foreign currencies. The strong dollar natural RMB will be relatively weak.

For the recent fall in the RMB exchange rate factors, Xie logistics analysis, said, one is the further relaxation of domestic monetary policy, the recent MLF and LPR interest rate cut, the exchange rate of short-term disturbance; two is the pace of the Federal Reserve interest rate hikes did not slow down, the euro continued to weaken; three is the repeated epidemic, Sichuan power restrictions and other factors make the capital for the domestic economic recovery process concerns.

“If the inversion of the interest rate gap between China and the United States continues to widen, the exchange rate has a certain possibility of breaking 7.” Xie Logistics said, but the RMB’s supporting factors continue to be stable, and there is no basis for long-term depreciation.

Chen Yucheng also believes that from the current account, China’s exports remain resilient. In the long run, the support for the yuan comes from domestic economic repair, so there will be no unilateral depreciation, and breaking 7 is a small probability event.

“From the overall trend of the yuan this year, it is just weak relative to the dollar.” Xu Yaxin gave a set of data, the yen, the euro and the British pound so far in the year, relative to the dollar depreciation of 20.65%, 12.82% and 13.82% respectively, while the yuan against the dollar only depreciated 8.87% in the year. “So, it is not critical for the RMB to break 7 against the dollar, and the RMB remains relatively strong relative to the performance of many other countries’ exchange rates. The domestic adoption of an accommodative monetary policy will certainly bring depreciation pressure on the short-term exchange rate, but stabilizing economic fundamentals is more conducive to the confidence of funds in the medium and long term, and there is no need to worry too much about the short-term depreciation of the RMB against the dollar.”