The break of the 7 exchange rate in August did not have a significant impact on the process of RMB internationalization.
SWIFT explained that the value of RMB payments rose 15.27% in August compared with July, while the value of all other currencies in the same period fell 5.92% annually.
In the view of many people in cross-border business departments of large state-owned banks, the obvious recovery of RMB international payment share in August is due to the fact that RMB exchange rate does not necessarily show a significant depreciation expectation after breaking 7, which makes more and more overseas institutions willing to accept RMB instead. On the other hand, German debt and Japanese debt are on the negative yield track in August. As the US Treasury bond yields continue to decline, the advantages of RMB treasury bond yields become increasingly prominent, attracting a large number of overseas institutions to obtain RMB positions through cross-border trade settlement and other channels to allocate RMB bonds, in order to obtain sound asset returns.
Correspondingly, data released by the National Interbank Borrowing Center show that in August, foreign institutional investors purchased 69.9 billion yuan of RMB bonds, and the size of holding RMB bonds rose to 202.47 billion yuan, a record high.
A head of cross-border business of a joint-stock bank pointed out to reporters that another reason for the rise in the share of RMB international payments in August was that the liquidity of the US dollar did not tend to be relaxed with the Feds interest rate reduction, but that overnight repurchase rates soared because of the sharp drop in the holdings of overstocked currencies of US primary dealers, which led to a large number of overnight repurchase rates. Cross-border trade enterprises abandoned the payment method in US dollars to settle cross-border trade in RMB because of the rising cost of US dollar financing.
In the short term, this undoubtedly brings new opportunities for the internationalization of RMB. He thought.
Renminbi is favored again
Before setting its highest level since January 2016 in August, the share of RMB in international payments fell to 1.81% in July from 1.99% in June.
SWIFT pointed out that although the value of RMB payment rose 0.33% in July compared with June, the value of all other payment currencies rose 9.72% in the same period, dwarfing the value of RMB.
Behind this, in July, international financial institutions and enterprises feared that the RMB would depreciate, so they did not dare to accept the RMB for the time being. The head of the cross-border business department of the above-mentioned joint-stock banks told reporters that, in addition to the increase of the US dollar index by about 2.4% in August, many multinational enterprises tend to use US dollar funds in cross-border trade settlement.
This also poses considerable pressure on domestic enterprises to exchange and pay. He revealed. On the one hand, the Feds interest rate cut did not ease the liquidity of the US dollar. Many domestic and foreign trade enterprises found that the financing cost of borrowing US dollar positions to pay for goods at home and abroad remained high, which significantly reduced their trade profits. On the other hand, some banks also strengthened the verification of the authenticity of the background of foreign trade contracts and eliminated some enterprises at that time. Transferring US dollar funds through cross-border trade exchange also makes many foreign trade enterprises feel that the process of foreign trade exchange payment has been lengthened.
By August, the exchange pressure suddenly eased a lot. The head of cross-border business department of joint-stock banks told reporters. The reason for this is that many foreign institutions and enterprises in the same month have asked domestic enterprises to pay as much RMB as possible in cross-border trade settlement. Even many foreign enterprises that insisted on collecting US dollars before have suddenly turned to embrace RMB strongly.
One reason is that Chinese banks have sold US dollar positions in offshore US dollar/RMB swap market since August, keeping one-year US dollar/RMB swap trading points at a low level (corresponding to the US-US spreads of only about 30 basis points), which makes the market suddenly find that the expectation of RMB depreciation has narrowed sharply. The other is that the Federal Reserve has cut interest rates between China and the US. Interest spreads continue to expand to about 160 basis points, making more and more overseas institutional enterprises tend to acquire RMB and buy RMB bonds to obtain a steady and considerable return on assets.
A Hong Kong bank foreign exchange trader told reporters that in August, many foreign trading enterprises acquired RMB positions through cross-border trade settlement, either through bond channels to buy relatively high-yielding RMB Treasury bonds, or directly in the offshore market to subscribe to various structural bills linked to RMB bonds, for an annualized 3%-4%. % Risk-free spreads.
More importantly, many foreign companies have found that the strengthening of the US dollar has led to the devaluation of non-US emerging market currencies since August, but the RMB exchange rate is relatively strong, not only falling far less than the emerging market currencies such as the Argentine peso and Hungarian forint, but also to the traditional reserves such as the euro and the pound, which are deeply involved in Britains breaking away from Europe. Currencies appreciate to some extent, so they tend to add RMB positions in cross-border capital pools of enterprises to hedge the risk of large fluctuations in the exchange rate of a basket of currencies. He pointed out. This is also one of the main reasons why some multinational enterprises have transported a large amount of RMB to their overseas headquarters by means of cross-border fund pool business since August, but this has undoubtedly greatly increased the international payment share of RMB.
Hedging Basket Currency Exchange Rate Fluctuation
In the view of many industry insiders, the share of RMB international payment in August reached a new high since January 2016, which shows that even if the exchange rate falls below 7, it will not hinder the acceleration of RMB internationalization.
In fact, our recent research and development found that more and more overseas institutional enterprises are increasing their positions in RMB, not only to gain riskless interest margin between RMB appreciation and RMB bonds, but also to hedge the risk of exchange rate volatility in different countries. A head of the research department of an overseas consulting agency told reporters. Specifically, compared with the volatility of euro, dollar, pound sterling, Argentine peso, Turkish lira and other currencies, the overall fluctuation of the RMB exchange rate remains relatively stable and remains basically stable against a basket of currencies. Therefore, many overseas institutional enterprises are planning to increase the allocation of RMB. To hedge the risk of large fluctuations in the exchange rate of a basket of currencies.
In his view, most multinational companies are particularly afraid of the risk of a sharp devaluation of the exchange rates of their currencies, because it will cause their trade profits to shrink sharply, or even turn profits into losses. Therefore, while avoiding the risk of abnormal exchange rate fluctuations through traditional exchange rate hedging tools, warehousing RMB positions is also considered as an effective strategy to mitigate exchange rate risk.
The head of Asia-Pacific region, a European and American capital management institution, told reporters that in addition to increasing the allocation of RMB as a reserve currency from 3% to about 7%, they were also considering lending some RMB positions to large foreign multinational enterprises, one to facilitate the latter to expand cross-border trade with Chinese enterprises in RMB, and the other to facilitate the latter to expand cross-border trade with Chinese enterprises. They can also get considerable Renminbi lending returns.
This is mainly due to the vigorous development of RMB business of local banks. He said. At present, many banks are assisting local banks such as one belt and one road to set up business processes such as RMB account creation, RMB cash management, RMB trade financing, RMB loans, and RMB exchange rate risk hedging, which further widen the scope of RMBs overseas use, and this will certainly further drive. The continuous increase of RMBs international payment share has formed a virtuous circle of increasing the reserve currency and expanding the scope of its use.
Source: Responsible Editor of 21st Century Economic Report: Yang Bin_NF4368