The first cross-border RMB settlement business between China and Pakistan was successfully handled, and China's first LNG procurement transaction was settled in RMB...
Why the renminbi is popular
Reporter Chai Yaxin
The first cross-border RMB settlement business between China and Brazil was successfully completed, China's first RMB-settled imported liquefied natural gas (LNG) procurement transaction was reached, and the first RMB loan cooperation between China and Saudi Arabia National Bank was launched... Recently, the good news of RMB internationalization has continued, and remarkable progress has been made in many aspects.
The report of the 20th National Congress of the Communist Party of China proposed to promote the internationalization of the RMB in an orderly manner. How do you view the recent series of actions in the internationalization of the RMB? Why are more and more countries choosing to use RMB? What are the opportunities and challenges facing RMB internationalization? The reporter interviewed Wang Jiaqiang, senior researcher of the Bank of China Research Institute.
Currency internationalization reflects the comprehensive strength of the country, and a series of achievements are the result of the combined effect of China's policy orientation and changes in the external environment
Q: How do you view the recent series of moves in the internationalization of the RMB?
Wang Jiaqiang: Since the beginning of this year, the internationalization of the RMB has made new progress, and from the perspective of regional performance: First, China has made significant progress in bilateral monetary cooperation with other BRICS countries. BRICS countries are typical representatives of emerging economies, and the use of RMB in BRICS countries has a demonstration effect. For example, the use of the renminbi in Russia has increased significantly, and it now accounts for the second largest proportion of Russia's foreign exchange reserves after the euro; In March, Brazil reached a bilateral local currency settlement agreement with China, an important new breakthrough for the renminbi in Latin American countries.
Second, new breakthroughs have been made in bilateral monetary cooperation between China and countries in the Middle East. The Middle East is energy and resource intensive, and China is an important importer of commodities, and bilateral monetary cooperation is of great significance. Over the past few years, bilateral local currency settlements with China between countries such as Iran and Iraq have evolved. In March this year, the Export-Import Bank of China and the State Bank of Saudi Arabia launched their first RMB loan cooperation, highlighting the important progress in the use of RMB in the investment and financing market in the Middle East.
Third, the use of RMB in the ASEAN region has been comprehensively expanded. In 2022, ASEAN has become China's largest trading partner for three consecutive years, and the entry into force of the RCEP agreement has promoted the use of RMB in the ASEAN region to a new level. In the past decade, cross-border RMB receipts and payments between China and ASEAN have increased nearly 3 times, accounting for the share of RMB cross-border payments in the same period, second only to Hong Kong. At present, countries such as Malaysia, Singapore, Thailand, Indonesia, Cambodia and the Philippines have included RMB in their foreign exchange reserves.
Fourth, new progress has been made in the use of the renminbi in Western European countries. Western European countries are important economic centers in the world, and have important financial centers such as London, Paris, Frankfurt and Luxembourg, and have been using the RMB as an important direction to consolidate their status as financial centers. In March, CNOOC and France's Total Energy completed the first RMB settlement import LNG transaction, marking the further expansion of the use of RMB in Europe.
Q: Why are more and more countries choosing to use RMB?
Wang Jiaqiang: Currency internationalization reflects the comprehensive strength of the country, and a series of achievements are the result of the combined effect of China's policy orientation and changes in the external environment. The report of the 20th National Congress of the Communist Party of China proposed to "promote the internationalization of the RMB in an orderly manner", and the financial management department actively implemented the central decision, increased the intensity of financial regulatory reform, built and improved the domestic financial market, and actively selected regions, products and cooperation objects to promote the internationalization of the RMB. At the same time, with the help of steady macro policies, China's economy has grown steadily, inflation has remained at a low level, foreign investment and trade have developed steadily, the RMB exchange rate has been basically stable, and the RMB currency value has shown great stability, establishing a higher international reputation and attracting investors and traders from all over the world.
At the same time, since last year, the international situation and external environment have changed rapidly, and many factors have become a booster for more and more countries to join the "circle of friends" of the RMB: in international geopolitical conflicts, the US dollar has been used as a financial weapon and a tool for sanctions, greatly damaging its international credibility; In the face of surging inflation, the United States and European countries changed their previous zero interest rate policy, short-term, high-frequency, and sharp interest rate hikes led to high volatility in the global financial market, the exchange rates of major currencies such as the US dollar, the euro and the yen fluctuated sharply, and the British pension market, Silicon Valley Bank, Credit Suisse and other crises broke out one after another; In order to maintain its hegemony, the United States has "decoupled and broken the chain" in international investment and trade, suppressing competitors, etc. Faced with global challenges such as development, security and environment, many countries have chosen to cooperate with China and the RMB, showing the general trend and the will of the people.
The functions of international currencies such as RMB cross-border payment, investment and financing, and reserves have been comprehensively enhanced, and its international status has been significantly improved
Q: What are the achievements of RMB internationalization?
Wang Jiaqiang: The pilot project of RMB settlement of cross-border trade in 2009 marked the start of RMB internationalization. In the past ten years of development, the internationalization of RMB has experienced rapid breakthroughs (2009-2015), fluctuation adjustment (2016-2019), steady recovery (2020-2021), and orderly progress (2022-present). If we classify the financial function of RMB as an international currency, it can be summarized from five aspects:
As a payment and settlement currency, the cross-border use of RMB has made remarkable achievements. In 2022, China's cross-border RMB receipts and payments totaled 42.1 trillion yuan, accounting for 49% of the total domestic and foreign currency receipts and payments in the same period. According to statistics released by SWIFT (Society for Worldwide Interbank Financial Telecommunication), the share of RMB international payments reached 2022.2% in 3, ranking the fifth largest payment currency in the world. Especially in the commodity market, China's listed crude oil, iron ore, international copper, palm oil and other specific varieties of trading futures have developed steadily, providing a pricing benchmark for RMB denominated settlement of commodity transactions to a greater extent.
As an investment and financing currency, the function has been comprehensively expanded and the scale has continued to expand. RMB is widely used in trade finance, deposits, loans, RMB pooling, securities financing, investment wealth management and direct investment in cross-border and offshore markets. For example, at the end of 2022, the total scale of assets held by foreign entities in four types of domestic RMB deposits, loans, stocks and bonds reached 9.6 trillion yuan.
As a transaction currency, the international status of RMB has been significantly enhanced. According to the Bank for International Settlements' triennial survey data, the share of RMB in the global foreign exchange market increased to 2022.4% in April 7, becoming the fifth largest traded currency in the world, compared with only 0.2010% in April 4, ranking 0th in the world.
As a foreign exchange reserve currency, the renminbi joined the Special Drawing Rights (SDR), jumping to the fifth largest reserve currency in the world. According to IMF data, as of the end of 2022, the size of RMB reserves held by global central banks was US$2984.4 billion, and RMB accounted for 2.7% of global foreign exchange reserves, an increase of 2016.1 percentage points from 6, ranking fifth among major reserve currencies. According to incomplete statistics, more than 80 overseas central banks or monetary authorities have included RMB in foreign exchange reserves.
International cooperation has been comprehensively promoted to create a development environment for the internationalization of the RMB. With the promotion of bilateral local currency settlement cooperation with Brazil and other important economies in 2023, the use of RMB in cross-border economic and trade activities has expanded significantly. Up to now, China has signed bilateral local currency swap agreements with central banks or monetary authorities of 40 countries and regions, with a total amount of more than 4 trillion yuan and an effective amount of more than 3.5 trillion yuan, bilateral currency swaps can provide stable liquidity support for local areas, and better promote cross-border RMB investment and financing and offshore RMB market development. In terms of overseas clearing mechanism arrangements, China has authorized 29 overseas RMB clearing banks in 31 countries and regions.
The internationalization of the RMB is conducive to promoting the reform of the international monetary system and global economic governance
Q: Why promote the internationalization of the RMB? How does this affect China's own development?
Wang Jiaqiang: The internationalization of the RMB is an inevitable choice for China, as a global economic power, to continue to expand its opening up. When the internationalization of the renminbi was launched in 2009, China was already the world's third largest economy and the largest exporter. As an influential economic and trade power in the world, the internationalization of RMB will help promote the development of China's cross-border trade activities and investment and financing, especially reducing foreign exchange costs, preventing exchange rate risks, and facilitating payment and settlement.
The internationalization of RMB is also conducive to promoting the opening up of China's financial market, expanding the intensity of attracting foreign investment and foreign investment by enhancing the attractiveness of foreign investors to share the dividends of China's economic growth, and making better use of domestic and international resources to serve the high-quality development of China's real economy.
Promoting high-level institutional opening up also requires the internationalization of the RMB as an important guarantee. From the perspective of national economic security and financial security, the United States frequently uses the US dollar as a financial weapon and sanctions tool to curb and suppress China's development, get rid of the hegemony of the US dollar, and safeguard national security has become an important and urgent motive for the accelerated development of RMB internationalization. From the perspective of promoting the high-quality development of foreign economic and trade cooperation, in addition to promoting trade and investment facilitation, China is the world's largest commodity demand country, but the pricing power of RMB in the commodity market is still relatively weak, and promoting the internationalization of RMB will better maintain market stability and increase China's economic interests.
Q: What is the impact of RMB internationalization on the international monetary system and the world economy?
Wang Jiaqiang: The internationalization of the RMB is conducive to promoting the reform of the international monetary system and global economic governance. At present, emerging markets and developing countries account for an increasing proportion of the global economy, but the international monetary system is still dominated by the US dollar. In the context of "America First" and unwillingness to assume governance responsibilities, global economic governance is increasingly facing challenges. The internationalization of the RMB can play an important stabilizing role in global economic and financial governance, better promote China's integration into the world economy, promote the development of global economic governance in a fairer, more open and more effective direction, and promote the construction of a community with a shared future for mankind.
As an international currency, it must also bear corresponding responsibilities, such as providing liquidity for the global market, anchoring exchange rate stability, opening up the domestic financial market, enhancing the coordination of global macro policies, and implementing responsible foreign financial policies. Under certain circumstances, due to the objective existence of the "impossible triangle" of free flow of capital, monetary policy independence and exchange rate stability, the internationalization of RMB will bring new challenges to China's macro policy, financial supervision and financial system adaptability, and China will face greater systemic risk management and control pressure. In addition, China's economic and financial system will also have a higher degree of exposure to external risks, and the security protection ability of overseas financial assets, the global competitiveness of financial institutions, and the level of quality and expansion of financial markets will face greater requirements for comprehensive improvement.
Adhere to seeking progress in stability, orderly and controllable, constantly build a sound institutional foundation, and contribute to China's high-level institutional opening-up
Q: What are the current opportunities for RMB internationalization? What are the challenges?
Wang Jiaqiang: Judging from the current internal and external development situation, the internationalization of RMB faces a series of opportunities: First, the irresponsible foreign policy of the United States and the various drawbacks of the US dollar hegemony are causing widespread opposition from all countries in the world, and the demand for expanding economic and financial cooperation with China is becoming increasingly strong, and the internationalization of RMB has ushered in an important development window; Second, China's economy is expected to achieve a relatively rapid recovery this year, the RMB exchange rate, China's inflation level, and financial market are expected to maintain a more stable state, and the internationalization of RMB ushered in a better market environment; Third, China plays an active role in promoting regional dispute settlement, has a stronger influence on all countries in the world, and promotes international cooperation, including the internationalization of the RMB, ushering in a better atmosphere; Fourth, in the medium and long term, China's trend as a global economic power, a major consumer market and an important economic and trade partner will not be reversed, social governance will be more perfect, the level of financial supervision will be continuously improved, and macro policies will be more mature, forming a strong foundation support for the continuous promotion of RMB internationalization.
There are also many challenges: first, the United States continues to obstruct, implementing "decoupling and breaking the chain" and containment and suppression policies, which has impacted investors' confidence in China's financial system, and the internationalization of RMB is facing greater external risk management and control challenges; Second, the status of the US dollar is still difficult to shake in the short term, the payment and settlement system, customer usage habits, financial market volume, etc. established by the US dollar in the past hundred years are quite competitive, and the internationalization of RMB faces not small market barriers, especially the acceptance of RMB in European and American countries is still not high enough; Third, China's financial supervision level needs to be improved, especially in the environment of continuous expansion of financial market opening, rapid iteration of financial product innovation, and more complex financial risk patterns, financial regulatory authorities urgently need to enhance their regulatory capabilities in infrastructure construction, regulatory technology application, digital currency promotion, macro-prudential supervision, micro-behavior supervision, cross-departmental linkage, cross-border cooperation and other fields, so as to provide institutional guarantees and tool support for RMB internationalization; Fourth, the global competitiveness of China's financial institutions is still weak. From the experience of European and American countries, the internationalization of currencies depends to a considerable extent on domestic multinational financial institutions as the main channel to provide perfect local currency financial services. At present, the competitiveness of China's multinational banks has improved significantly compared with the past, but there is still a gap compared with the leading international banks.
Q: How to continue to promote the internationalization of the RMB in an orderly manner? Where should we focus our efforts?
Wang Jiaqiang: To promote the internationalization of the RMB, we should adhere to the principle of seeking progress in a stable manner, orderly and controllable, continuously build a sound institutional foundation, and contribute to China's high-level institutional opening-up.
First, do a good job in basic and supporting work, and practice internal strength in cross-border RMB infrastructure construction and financial opening system construction. To a certain extent, the internationalization of RMB is a process of continuously removing factors that restrict the cross-border use of RMB, such as laying a smoother payment and clearing system, improving the layout of global payment and clearing institutions, and improving the transaction settlement system and trading venues that facilitate the opening of the investment and financing market. Under the general trend of digital currency development, it is also necessary to continue to do a good job in technology research and development of cross-border digital currency cooperation and build a cross-border cooperation mechanism.
The second is to gradually do a good job in opening up the financial market. At present, there is still a lot of room for the opening up of China's foreign exchange market, interbank market, derivatives market, asset management market, etc., and we must adhere to the method of gradual and steady progress, and gradually open up under the premise of controlling risks. In terms of opening up targets, priority will be given to promoting the opening up and cooperation of neighboring countries, friendly countries and countries with close economic and trade exchanges, especially under the RCEP framework, giving full play to the regional influence of the RMB, and promoting China's expansion of local currency settlement and investment and financing activities with important trading partners such as ASEAN.
The third is to establish an appropriate incentive mechanism to promote the preferential use of RMB by China's multinational enterprises and multinational financial institutions. In order to increase the enthusiasm of multinational enterprises to use RMB in cross-border trade and investment, a more incentive-effective assessment mechanism can be established to promote the use of RMB by enterprises and financial institutions in foreign investment and financing. Actively guide foreign trade enterprises to use RMB settlement, urge financial institutions to respond quickly to enterprise needs, simplify business handling procedures, and provide high-quality cross-border RMB financial products and services.
The fourth is to strengthen the risk prevention and control of RMB internationalization. The financial sector should continue to promote international cooperation and improve the supply mechanism of RMB liquidity in the offshore market through the currency swap mechanism; Develop regulatory tools for cross-border capital monitoring and monitoring, and improve the management ability and risk prevention and control capabilities of cross-border capital flows under open conditions.