The Shanghai Securities News published an article on the 22nd, “surpassing the yen! RMB becomes the fourth largest currency in the world”. According to the article, the latest data from the State Administration of foreign exchange shows that from 2018 to 2021, the cumulative net increase of foreign capital in domestic bonds and stocks exceeded US $700 billion, with an average annual growth rate of 34%.
At the same time, the global activity of RMB has reached a new level. According to the latest data of the Global Banking Financial Telecommunication Association (Swift), in December 2021, the share of RMB in international payments rose to the fourth in the global payment currency ranking based on amount statistics. This is also the first time since August 2015 that the global ranking of RMB international payment has surpassed the Japanese yen and ranked among the top four active currencies in the world.
Ranking of global payments in major currencies in December 2021 (drawn by Guo chenkai)
the net increase of domestic debt shares held by foreign capital in four years exceeded US $700 billion
“With the opening of the financial market to the outside world, the attraction of RMB assets has increased. Foreign capital has increased the allocation of RMB assets, which has gradually become an important channel for cross-border capital inflow.” Wang Chunying, deputy director of the State Administration of foreign exchange and spokesman, said at a press conference on foreign exchange revenue and expenditure data in 2021 held by the state information office on January 21.
Wang Chunying said that in terms of increasing the allocation of RMB assets by foreign capital, there are three prominent characteristics:
First, the growth rate is fast. Since the expansion of capital market opening in 2017, from 2018 to 2021, the cumulative net increase of foreign capital in domestic bonds and stocks exceeded US $700 billion, with an average annual growth rate of 34%.
Second, there is great potential for improvement. At present, the proportion of foreign capital in China’s stock market and bond market remains at 3% to 5%, which is relatively low compared with developed and emerging economies such as Japan, South Korea and Brazil, and has great potential for improvement in the future.
Third, high investment value. The correlation between RMB assets and asset prices and returns of developed and emerging economies is relatively low. It is a very good choice for international portfolio to diversify risks.
RMB ranks among the top four active currencies in the world for the first time in six years
According to the latest data from swift, in December 2021, in the ranking of payment amount in major currencies, USD, euro and Sterling ranked the top three with 40.51%, 36.65% and 5.89% respectively. The share of the yen fell to 2.58%, down one place from the previous fourth to fifth.
The RMB rose one place, ranking among the world’s top four active currencies. This is also the first time that the global ranking of RMB international payments has surpassed the yen since August 2015.
In terms of proportion, the proportion of RMB global payment increased from 2.14% in November 2021 to 2.7% in December; In terms of amount, in December 2021, the RMB payment amount increased by 34.6% compared with November, and the global payment amount in all currencies increased by 6.44% in the same period.
China Everbright Bank Company Limited Co.Ltd(601818) financial market analyst Zhou Maohua told reporters that in December 2021, the proportion of RMB in global payments further increased, which is basically consistent with China’s active foreign trade and the continuous inflow of foreign capital attracted by RMB assets.
“China’s epidemic prevention and control situation is improving, the economy as a whole operates within a reasonable range, the structure continues to be optimized, the internationalization of RMB is steadily advancing, the overall operation of RMB exchange rate is stable, and the willingness of overseas trade parties to use RMB as a settlement and payment tool is increasing.” Zhou Maohua said.
RMB is expected to become the third largest reserve currency
With the increasing activity of RMB in the payment field, its status as an official reserve currency is also being consolidated.
According to the latest “official foreign exchange reserve currency composition (Cofer)” data released by the International Monetary Fund (IMF), the proportion of RMB in Cofer rose again in the third quarter of 2021, reaching a new high since the IMF reported the data in the fourth quarter of 2016.
In the third quarter of 2021, the share of RMB in global foreign exchange reserves increased from 2.61% in the second quarter of 2021 to 2.66%, ranking fifth in the world. This is also the highest level since the IMF began to publish RMB reserve assets in 2016. “In recent years, the proportion of RMB in global foreign exchange reserve assets has also increased steadily, reflecting the global central banks’ preference for RMB assets.” Zhou Maohua said.
The industry expects that the proportion of RMB foreign exchange reserves still has great room for improvement. Accordingly, there is still great potential for foreign investors to increase their holdings of RMB bonds.
“In 2022, although there are still a lot of uncertainties in the global market, the RMB bond market will still be a favorable choice for global investors to diversify.” Liu Linan, director of macro strategy in Greater China of Deutsche Bank Group, believes that global investors will continue to overweight RMB assets due to the long-term high interest rate difference between China and the United States, the relatively low proportion of global investors in RMB assets, and the deepening opening of China’s financial market to the outside world.
This will also promote the RMB to play a more important role in the international arena. Zhou Maohua said that from the perspective of trend, the proportion of RMB global payment still does not match China’s economic volume and trade volume, and there is still much room for development relative to the US dollar and the euro. China’s economy has been developing well for a long time, the internationalization of RMB has been steadily promoted, and China has accelerated the construction of a dual cycle development pattern. In the future, the role of RMB in international payment, investment and reserve will continue to increase.
Morgan Stanley research department predicts that the trade weighted RMB may maintain the trend of appreciation in fluctuation for a long time. It is expected that by 2030, the RMB is expected to become the third largest reserve currency after the US dollar and the euro.
