Zhou Tianyun (Professor of School of International Finance, Sun Yat-Sen University, Researcher of Advanced Institute of Finance)
According to the “2022 RMB Internationalization Report” released by the central bank a few days ago, the share of RMB international payments will increase to 2.7% in December 2021, surpassing the Japanese yen to become the fourth payment currency in the world, and will further increase to 3.2% in January 2022. , a record high. According to the Currency Composition of Official Foreign Exchange Reserves (COFER) data released by the International Monetary Fund (IMF), in the first quarter of 2022, the RMB accounted for 2.88% of the global foreign exchange reserves, which is higher than that when the RMB joined the Special Drawing Rights (SDR) in 2016. ) rose 1.8 percentage points in the currency basket, ranking fifth among the major reserve currencies. The overall performance of RMB internationalization is that all indicators of RMB internationalization are generally improving, the function of RMB payment currency has been steadily improved, the function of investment and financing currency has been further deepened, the function of reserve currency has been continuously improved, and the function of denomination currency has been gradually enhanced.
The report specifically proposes that “in the next stage, we must promote the transformation of the financial market to a comprehensive institutional opening and improve the liquidity of RMB financial assets.” The key to promoting the internationalization of the RMB is to enhance its liquidity. One of the “three characteristics” of renminbi assets, the liquidity of renminbi assets is the attribute of renminbi assets that investors are most concerned regarding.
First of all, “promoting the transformation of the financial market to a comprehensive institutional opening and improving the liquidity of RMB financial assets” is the institutional guarantee for the internationalization of the RMB. Institutional opening promotes two-way opening of the financial market at a higher level. The financial market is transformed from partial pipeline opening to comprehensive institutional opening. The two-way opening covering various markets, institutions and products is expected to expand steadily, and the interconnection between domestic and overseas markets is expected to continue to deepen. , under the conditions of opening up, the supervision capacity is expected to be continuously strengthened, and the dividends of opening up will be further released. The continuous advancement of my country’s financial market opening has laid a market foundation for the determination of the RMB exchange rate market, and promoted the benign interaction between the RMB onshore and offshore markets. RMB assets remain highly attractive to global investors, and continue to enhance the status of the RMB as an international currency. At present, China’s economic fundamentals are stable, its opening-up direction is firm, and it is limited by external factors. The underlying logic of foreign investment in RMB assets has not changed.
Secondly, “promoting the transformation of the financial market to a comprehensive institutional opening and improving the liquidity of RMB financial assets” is the market basis for the internationalization of the RMB. Developed financial markets provide the necessary environment and platform for RMB internationalization. For RMB to become an international currency, it must perform its functions of exchange and payment in the developed financial market. Without a sound financial market, the internationalization of RMB will lack the basis for advancement. Therefore, a free, open and developed financial market is a necessary condition to promote the formation of a reasonable exchange rate mechanism and ensure the functioning of the international currency. Whether in terms of the functions and characteristics of the international currency, the necessary conditions for currency internationalization, the rationality of the exchange rate formation mechanism, and the demand for international capital flows, the deepening opening of the financial market is a necessary condition for the internationalization of the RMB. , Developed financial market and financial system – the financial market has diversified financial products, active secondary market and high liquidity, which is the market basis for promoting the internationalization of the RMB and helps to speed up the process of RMB internationalization.
Third, “promoting the transformation of the financial market to a comprehensive institutional opening and improving the liquidity of RMB financial assets” is an effective way for the international RMB to play its investment and financing functions. The increasingly liquid RMB financial assets facilitate foreign investors to invest in the Chinese market, enrich the types of assets that can be invested, and facilitate foreign investors, especially central bank institutions, to allocate more RMB assets. The trend of net inflow will help to enhance the status of RMB as an international investment and financing currency. As of the end of 2021, the total amount of financial assets such as domestic RMB stocks, bonds, loans and deposits held by foreign entities totaled 10.83 trillion yuan, a year-on-year increase of 20.5%. The offshore RMB market has gradually recovered and transactions have become more active. By the end of 2021, RMB deposits in major offshore markets were close to 1.50 trillion yuan.
Finally, “promoting the transformation of the financial market to a comprehensive institutional opening and improving the liquidity of RMB financial assets” is a good opportunity for the RMB to play its role as an international currency. The expansion of the scale of the financial market and the improvement of efficiency will allow more RMB settlement and financing to be conducted through the financial market, thereby enhancing the status of the RMB as an international currency. To a certain extent, the internationalization of RMB is reflected in whether it can become a medium for financial activities and an international financial asset in a non-domestic range. A financial market with larger capacity and more financial products denominated in local currency and standardized and internationalized operating rules and market order can not only provide low-cost services for asset transfer and capital flow on an international scale to attract non-residents willing Assets denominated in local currency held, and also provide a sufficient quantity and highly liquid trading market for financial assets denominated in RMB to meet the demand for overseas reserve assets. The highly liquid renminbi can attract more international transactions and payments to be settled in renminbi. According to data from the Society for Worldwide Interbank Financial Telecommunication (SWIFT), the share of international payments in renminbi will increase to 2.7% in December 2021, surpassing that of the Japanese yen. The fourth payment currency in the world will further increase to 3.2% in January 2022, a record high.
The internationalization of RMB has achieved fruitful results and major breakthroughs in the field of international settlement, and it has also gradually strengthened in terms of international pricing currency. Improving the function of RMB as an international currency will help to enhance the functions of means of payment, flow and storage, reduce the cost of using RMB, and improve currency competitiveness and international currency status. With the relatively high market share of my country’s commodity market, commodity pricing has become a breakthrough in the function of RMB denominated currency. The RMB exchange rate has shown a two-way fluctuation trend. The endogenous demand of market players to use RMB to avoid exchange rate risks has gradually increased. The function of money is gradually improved. In May 2022, the International Monetary Fund (IMF) raised the weight of the RMB in the Special Drawing Rights (SDR) from 10.92% to 12.28%, which also reflects the IMF’s recognition of the increased degree of free use of the RMB and strengthens the role of the RMB as a currency. Functions of an international reserve currency.
