RMB Can Directly Promote Internationalization With The Euro.

The State Administration of Foreign Exchange announced on September 30th that it would launch direct trading of Renminbi against the euro in the interbank foreign exchange market.

The RMB can be exchanged directly with the euro without the help of intermediary money. This measure can not only reduce the exchange cost of enterprises and individuals, promote trade between China and Europe, but also increase the amount of euros held in Chinese enterprises, including personal assets accounts.

More importantly, since the euro is one of the world's major currencies, the direct exchange rate of the RMB and the major global currencies can reach more than 95% after the direct conversion of the euro. In the future, not only can China EU trade and economic exchanges be used for global payment and settlement, but also China's foreign trade, including investment and financing, can be conveniently carried out in the global foreign exchange market, so that the market can be truly realized.

The key to the marketization of a country's currency is market quotation or quotation formation system.

In the past, the price of RMB to the euro was calculated through the exchange rate between the RMB and the US dollar and the exchange rate between us dollar and the euro, which is cumbersome and costly.

The average trade between China and Europe is 1 billion 500 million US dollars per day, which is equal to the volume of Sino US trade. However, the trade settlement between Chinese enterprises and European enterprises must pass through the US dollar, which is extremely unfair and inconvenient. It not only increases the settlement cost of traders, but also loses the best timing of exchange because of the short-term abnormal fluctuations in the international foreign exchange market.

In this regard, traders in Central Europe have long complained.

In the foreign exchange market of the Bank of China (601988, stock exchange), the RMB can achieve direct trade with the euro, and the market maker system is established at the same time. The market maker can continuously quote the two-way price of the direct paction of RMB against the euro, which provides convenience for the market currency movement and increases the volume of pactions.

In the past, we considered the internationalization process of RMB. More consideration was given to the relationship between RMB and international trade.

Actually, trade settlement convenience is only the first goal to be achieved in the course of RMB internationalization.

To become an international currency, the RMB must have an omni-directional trade settlement function as well as a reserve and investment function of the international currency.

Obviously, the RMB can not achieve direct trade convertibility to the second euro in the world, which is not only bad for many enterprises involved in Euro trade, but also makes investors feel tedious.

Why do central banks, including enterprises, need to reserve Renminbi? First, prevent large fluctuations in the international foreign exchange market and prevent the risk of depreciation of a single currency reserve; two, consider investment and consider how the total reserves of foreign exchange reserves can be realized.

RMB did not achieve direct conversion to the euro, and the international plate of the renminbi was 1/3 worse.

Reserves and investment are related. If the renminbi wants to become an important member of the international monetary system, if we want more foreign central banks, including investors willing to reserve renminbi, we must solve the difficult problem of RMB's investment function.

What is the problem? First, whether the renminbi can freely trade with all major currencies.

The direct sale of the renminbi to the euro is not far off.

According to data from the International Bank of settlements (BIS), in 2013, the share of RMB in global foreign exchange pactions was only 2.2%.

Why is it so low? Because the euro and pound are not yet able to achieve direct trading and buying and selling. Many investors around the world are not optimistic about the investment function of RMB, and the reserve function is also hard to obtain.

We must see that the renminbi is currently one of the major currencies in the world. Although the RMB has not yet been freely convertible, many central banks have quietly reserved Renminbi.

They believe that the reform of China's financial system will break through the convertibility of the renminbi.

Since the three quarter of this year, the US dollar has risen to nearly 1000 points against the euro, but the renminbi has remained relatively stable against the US dollar, especially its comprehensive exchange rate level.

From the perspective of steady growth, the continued appreciation of RMB is unfavorable for Chinese enterprises to actively expand exports, and is also unfavorable for macroeconomic stable operation.

The super strong renminbi, especially this expectation, may not be desired by Chinese monetary authorities.

What is China going to do? We hope that the euro and yen will rebound, but the direct purchase of euro and yen is too costly and risky.

There are many reasons for the weakness of the euro, one of which is a sharp rise in the value of the euro in the global foreign exchange market, while the ECB also wants the euro to depreciate moderately.

In the context of an upturn in the US economy and a significant depreciation of the US dollar, can the euro be stabilized? Is there any help in the direct exchange between the RMB and the euro, which is really intriguing.

Behind the uncertain factors, we can only look at the market performance.

The euro's performance has been commendable since the renminbi was declared to be convertible directly against the euro. During the trading days from October 4th to 9, the euro rebounded nearly 300 points against the US dollar and then stabilized above 12600.

The market indicates that the move of the Central Bank of China helps the stability of the euro.

This may be a coincidence, but in fact there is a logical relationship.

This year, the euro area countries, especially Germany, are facing China.

Bilateral trade volume has declined, which is not only related to the economic downturn in the euro area, but also to the inconvenient trade settlement between China and Europe.

Do not belittle the RMB exchange settlement against the euro to be pferred through the US dollar. As a result, the exchange fee has increased by about 1%, and because of the fact that the exchange is not in time, it is difficult for Chinese and European traders to grasp the exact time of exchange. Many traders say that a trade paction may earn only 5%, but the exchange loss is over 5%.

It can realize direct conversion and real-time exchange.

The exchange losses will be greatly avoided, which is one of the biggest reasons for the stability of the euro after the RMB announces the realtime exchange of the euro.

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The analysis shows that the direct exchange of RMB with the euro is a part of the strategy of "de dollarization", especially in China.

I think, can not be said, not to think so.

Is there any RMB strategy in China? There may be, but even if there is, it is not "de dollarization".

The Chinese government is well aware that the RMB can only be internationalized and marketed gradually under the premise of stability in the global foreign exchange market.

In the current economic globalization and the globalization of financial markets, maintaining market stability, including maintaining the stability of the euro, does not mean shorting the dollar, nor does it mean that the US dollar will lose its position.