Cross-border renminbi trade settlements have increased significantly since the start of this year, thanks to an improved ecosystem that favors the use of Chinese currency abroad, a banker said.
In the first quarter of this year, the Standard Chartered Renminbi Globalization Index (RGI), a measure of international renminbi use that is calculated on a monthly basis, rose 13% from the previous quarter, registering the largest increase quarterly in five and a half years. years and a half. This increase follows a 10.4% growth in RGI for the whole of 2020.
The index is based on four components: offshore renminbi deposits, trade settlements and other international payments, Dim Sum bonds and certificates of deposit issued, and foreign exchange turnover, all from one point. offshore view and denominated in renminbi.
The increase in RGI is strongly linked to China’s rapid recovery from the COVID-19 pandemic, the fundamentally stable renminbi exchange rate and increasingly open Chinese capital markets, said Jean Lu, co- Head of Corporate, Commercial and Institutional Banking Services at Standard Chartered China.
“China has created an ecosystem favoring the use of the renminbi abroad. An increasing number of foreign financial institutions have joined the country’s cross-border interbank payment system directly or indirectly, as further improvement of the system has made cross-border renminbi trade settlements much more In addition, the renminbi has become a global reserve currency through mechanisms such as China’s currency swap agreements with other countries, ”she said.
As of May 17, the cross-border interbank payment system had 1,171 participants from 100 countries and regions. Its activities covered more than 3,400 legal banking entities in nearly 200 countries and regions, the Shanghai Securities News reported.
“International trade counterparts of Chinese companies are more willing to accept the renminbi than before, not only because the exchange rate of the Chinese currency is relatively stable against other currencies, but also because they can invest their assets. in renminbi in China more easily through multiple channels. such as Bond Connect, a mutual market access program that allows investors from mainland China and overseas to trade in each other’s bond markets through a market infrastructure link in Hong Kong. In addition, China has removed the restrictions on the investment quota of Qualified Foreign Institutional Investors and RMB Foreign Institutional Investors in 2020, ”Lu said.
For companies whose main accounting currency is the renminbi, settling cross-border trade in renminbi will help them control currency risk.
During their communications with Standard Chartered bankers, many Chinese executives said they look forward to a more mature offshore renminbi market, in which all local financial institutions accept the renminbi, renminbi deposits will generate income. and trade between local currencies and the renminbi will run smoothly.
The People’s Bank of China, the central bank, should cooperate more with other central banks and foreign financial institutions, to foster such an offshore renminbi market and promote the vigorous development of the market, Lu said.
She also advised the Chinese government to encourage more companies to issue offshore renminbi bonds and to consider setting up overseas trading platforms for renminbi assets.
The internationalization of the renminbi has brought great achievements, but there is still a long way to go, said Liu Ligang, managing director and chief economist for China at Citigroup.
Data from SWIFT, the Society for Worldwide Interbank Financial Telecommunication, shows that the renminbi was the fifth most active currency for global payments by value in May, with a share of 1.9%.
Citi economists have estimated that the renminbi will replace the pound sterling as the world’s third largest payment currency by 2030, with its share rising to around 7.9%.