Increase bilateral local currency settlement channels, China-Pakistan central bank agreement is not "excluding the dollar"

The internationalization of the RMB has taken another solid step, and the role of the RMB in the international arena is becoming more and more important.

Recently, the financial cooperation between China and Brazil has attracted widespread attention from the international community. According to foreign media reports, the Brazilian government said on March 3 that China and Brazil have reached an agreement to no longer use the US dollar as an intermediate currency, but to carry out trade settlement in their own currency. This was interpreted by the market as a move by bilateral trade to "exclude the dollar".

The first financial reporter learned that in fact, the People's Bank of China established with the Central Bank of Brazil is the content of the settlement arrangement cooperation, not the foreign media understand that the US dollar is no longer used as an intermediate currency.

Nor is this the first memorandum of understanding signed by the People's Bank of China on RMB clearing arrangements. Up to now, the People's Bank of China has authorized 29 RMB clearing banks in 31 countries and regions.

Previously, Pan Gongsheng, vice governor of People's Bank of China, pointed out that after more than ten years of development, with the establishment of RMB clearing banks and local currency swap networks, the development of the offshore RMB market, the opening of the domestic financial market, and the continuous improvement of the overseas layout of Chinese financial institutions, "we feel that the RMB has initially had the network effect of international use."

Diversifying settlement currencies helps protect against risk

On February 2, People's Bank of China announced the signing of a memorandum of cooperation with the Central Bank of Brazil to establish a RMB clearing arrangement in Brazil. The establishment of the RMB clearing arrangement in Brazil will facilitate the use of RMB by Chinese and Brazilian enterprises and financial institutions for cross-border transactions, and further promote bilateral trade and investment facilitation.

In response, Chinese Foreign Ministry spokesperson Mao Ning responded to a regular press conference on March 3 that China and Brazil signed a memorandum of cooperation on the establishment of RMB clearing arrangements in Brazil earlier this year, and the establishment of Brazilian RMB clearing arrangements will help enterprises and financial institutions in China and Brazil use RMB for cross-border transactions and promote bilateral trade and investment facilitation.

In fact, this is not the first memorandum of cooperation signed by the People's Bank of China on a RMB clearing arrangement.

For example, as early as March 2014, 3, People's Bank of China signed a memorandum of cooperation with Deutsche Bundesbank to establish a RMB clearing arrangement in Frankfurt. On March 28 of the same year, People's Bank of China signed a memorandum of cooperation with the Bank of England to establish a RMB clearing arrangement in London.

Up to now, the People's Bank of China has authorized 29 RMB clearing banks in 31 countries and regions. RMB clearing banks have played an active role in improving the efficiency of RMB cross-border clearing and facilitating the use of cross-border RMB, providing market entities with a more diversified choice of currencies.

A person from the transaction banking department of a large state-owned bank told the first financial reporter that the above agreement between the Bank of China and the Central Bank of Brazil is not "excluding the US dollar", but the two central banks have reached a consensus to open bilateral local currency settlement channels in addition to other existing currencies, thereby forming currency diversification for cross-border transactions.

Zhu Jun, chairman of Silk Road Fund Co., Ltd. and former director of the Department of People's Bank of China International, said during the 2023 Boao Forum for Asia that in addition to Brazil, Saudi Arabia and Russia are increasing the settlement of RMB, on the one hand, it shows that the momentum of RMB internationalization development is strong, and the prospects for China's economic development are more optimistic; On the other hand, considering that there are some international concerns, such as geopolitical factors affecting some business plans or financial plans, some countries want to diversify and diversify their currencies as much as possible, which also helps to prevent risks.

In recent years, the People's Bank of China and central banks have increasingly strengthened cooperation, actively promoting cooperation in RMB international settlement business, bilateral local currency swaps, overseas clearing and cross-border payment of digital currency by multilateral central banks.

For example, the People's Bank of China has signed bilateral local currency cooperation agreements or cooperation frameworks with the central banks of several major neighboring countries, such as Bank Indonesia, Bank of Laos and National Bank of Cambodia.

The reporter learned that the bilateral local currency cooperation agreement is an agreement signed by the central banks of the two countries, aiming to promote the direct use of local currency settlement in bilateral cross-border trade and investment, deepen financial cooperation between the two countries, and improve the level of trade and investment facilitation.

Industry experts said that the deepening of local currency settlement cooperation will help alleviate the interference caused by changes in the liquidity of major international currencies on international trade settlement and financing, strengthen the unique position of the cross-border use of RMB in maintaining trade stability, and expand the cross-border use of RMB to serve bilateral economic and trade investment development has become the consensus of more and more market players.

In terms of bilateral local currency swaps, the 2022 RMB Internationalization Report shows that in 2021, People's Bank of China renewed bilateral local currency swap agreements with central banks or monetary authorities in 11 countries and regions, including Canada, Australia, Japan and the United Kingdom. By the end of 2021, People's Bank of China had signed bilateral local currency swap agreements with central banks or monetary authorities in 40 countries and regions, with a total amount of more than 4.02 trillion yuan and an effective amount of 3.54 trillion yuan.

Advance to a new stage in an orderly manner

Recently, the internationalization of the RMB has been continuous.

According to Xinhua News Agency, on March 3, CNOOC and Total Energy completed the first domestic purchase transaction of imported liquefied natural gas (LNG) settled in renminbi through the Shanghai Oil and Gas Exchange Center platform, with a volume of 28,3,200 to 000,3,400 million British thermal (about 000,6 tons), and LNG resources came from the GCC country United Arab Emirates. This is a useful attempt by Shanghai Oil and Gas Exchange Center to carry out RMB settlement of oil and gas trade, and an important practice to provide new channels for international resource providers to participate in the Chinese market and help build a new pattern of domestic and international dual circulation development.

In December last year, Bank of China helped the first cross-border RMB payment business in Yiwu, Zhejiang Province and Saudi Arabia. The use of RMB cross-border payment has played an important role in promoting China-Arab trade exchanges, and is also a vivid microcosm of trade and investment facilitation between China and Arab countries.

"Saudi Arabia is not short of money at all, why does it want RMB loans? Because the renminbi is now relatively cheaper than the dollar, and there is no exchange rate risk in purchasing Chinese goods with yuan, trade is more convenient. Zhu Min, vice chairman of the China Center for International Economic Exchanges and former deputy managing director of the International Monetary Fund, said during the Boao Forum that more and more countries are now using the renminbi for clearing and trade payments, which is a very important step for the renminbi to internationalize, but the renminbi still has a very important way to go.

Zhu Min said that after the conflict between Russia and Ukraine, the financial sanctions of the United States have largely undermined the integrity principles and rules and regulations of the market, such as its ability to confiscate the assets of the Russian central bank, push Russia out of the system, and prevent it from using dollars. In a sense, this has created a crisis of confidence in the dollar all over the world. Before 1971, the U.S. dollar was based on gold, and it was a credit currency. When confidence changed, China was not alone in the world for more than a year when there was a general trend to diversify its foreign exchange reserves away from the dollar.

Zhu Min said that the proportion of liquidation in other currencies has generally increased, and at the same time, the renminbi has also risen. But because the renminbi is not convertible and the capital account is not open, the renminbi as a whole accounts for only 3% of the world's foreign exchange reserves. "3% is not small, and under the premise that the renminbi is not convertible, it can already show that the trust in the renminbi is very high." RMB payments account for only about 2.82%, which is not very high, but there is already a trend of people willing to use RMB in trade. ”

The report of the 20th National Congress proposed to "promote the internationalization of the RMB in an orderly manner". In the market's view, the transition from prudent promotion of RMB internationalization to orderly promotion of RMB internationalization indicates that RMB internationalization has entered a new stage of orderly promotion of institutional design and action from a prudent stage of exploration and accumulation of experience, reflecting the prospect of RMB internationalization and market demand further positive improvement.

The internationalization of the currency reflects the comprehensive strength of the country, at present, China is facing a new global economic situation, the RMB will play a more important role in foreign economic and trade exchanges, and the internationalization of the RMB has also become a special concern of the market.

The international currency status of the renminbi has improved, which can be confirmed by a set of data. In May 2022, the IMF completed its five-year review of the valuation of SDRs, increasing the weight of RMB from 5.10% to 92.12%.

In addition, breakthroughs have been made in the cross-border use of RMB in key areas and important regions. In 2022, affected by the US dollar interest rate hike and the inversion of the interest rate between the US dollar and RMB government bonds, more market entities turned to RMB financing, and the issuance of RMB bonds in the offshore market exceeded 3850 billion yuan that year, a record high, and at the end of 2022, the outstanding RMB bond balance in the offshore market was about 6700 billion yuan, an increase of nearly 2021% from the end of <>.

The scale of cross-border use of the renminbi is also expanding. In 2022, China's cross-border RMB settlement scale exceeded 42 trillion yuan, an increase of about 2017.3 times over 5. The advantages of RMB cross-border use in saving exchange costs and avoiding exchange rate risks have been recognized by more and more market players, and with the continuous improvement of the convenience of RMB cross-border use, the demand for cross-border use of RMB will maintain a rapid growth trend.

Liu Jin, Governor of Bank of China, said that RMB internationalization will inject new impetus into China's cross-border economic and trade development from the following aspects: First, RMB internationalization will help enterprises save exchange costs and avoid exchange rate risks; Second, RMB internationalization will help further promote cross-border economic and trade development between China and other countries and regions. Finally, the cross-border use of RMB helps maintain stability in the field of cross-border economy, trade and investment. Promoting the use of local currencies in economic and trade exchanges can help cushion the impact of market fluctuations in third countries. In addition, China's growing economic strength has ensured the overall stability of the renminbi. More and more domestic and foreign market players are willing to use RMB in cross-border trade and settlement.

Yicai Author: Du Chuan