Global Financial Markets Look Forward To "China Dance"

From the beginning of cross-border trade currencies, we have steadily moved towards reserve currencies. The world is watching the "China dance step" moving towards the stage. At the same time, we also look at China's financial system reform and opening to the outside world with a higher standard and perspective.

The renminbi has become one of the five "freely available" currencies identified by IMF, and is a landmark event in China's comprehensive participation in global economic governance.

It will not only inject new impetus into the internationalization of RMB, but also further promote domestic financial reform and opening up.

In October 1, 2016, the renminbi will become the SDR (SDRs) super sovereign currency.

This is a milestone in the process of RMB internationalization.

In the future, the renminbi will play a more important role in the world economic arena and occupy a larger share of the global reserve manager's asset allocation.

At present, the foreign exchange reserves of the Central Bank of the US $11 trillion and 460 billion are only 1.13%.

Zhou Chengjun said: "conservative estimates, we believe that in a relatively short period of time, the proportion of RMB assets in the global central bank reserve assets will rise to more than 4%."

Yu Xiangrong, a macroeconomic analyst at CICC, said: "the basket will increase the exposure of the renminbi.

The weight of RMB in the new basket is 10.92%. Theoretically, all IMF Member States will automatically form an exposure of RMB about 210 billion yuan through the SDR.

Since the beginning of this year, overseas institutions have increased their holdings of Chinese treasury bonds by 96 billion 500 million yuan.

We estimate that by 2020, the share of RMB reserves is expected to reach 7.8%, corresponding to the demand for RMB security assets of about 5 trillion and 700 billion yuan.

With the accession of SDR to the renminbi, the international awareness of RMB will increase, and the confidence of the market will increase. This will reduce the resistance of overseas use of RMB and enhance the willingness to use Renminbi. Foreign enterprises and individuals will also have a high degree of acceptance of RMB, thereby promoting the RMB to be widely used in cross-border pactions such as outbound tourism, study, trade and investment and financing.

Liu Jian, general manager of the financial market department of Xinjiang branch, Bank of China, told reporters that before that, Central Asian countries habitually used the US dollar.

RMB's accession to the SDR will enhance confidence in the use of RMB settlement by Central Asian countries. Habits will gradually change, and it will also help open up the Silk Road Economic Belt to the West.

Yu Xiangrong believes that basket SDR is a milestone on the path of RMB internationalization. In the short term, the RMB will not pose a challenge to the dominance of the US dollar. But at a very low starting point, the share of the RMB will have enough room to increase and enlarge to a considerable volume.

Financial reform to SDR Road

After the Asian financial crisis in 1997, China carried out drastic reform of the financial system, especially the banking system, and the resilience and risk tolerance ability of the banking system was steadily improved.

After the international financial crisis in 2008, China's homeopathy promoted the use of RMB in cross-border trade and investment.

After years of reform and opening up, the depth and breadth of RMB in cross-border trade and investment have been expanding, and the degree of internationalization of RMB has increased rapidly.

Ten years of grinding a sword, but still worse.

In 2010, IMF conducted a five year routine review of the SDR currency basket. It believed that the renminbi met the threshold of export threshold, but it had not yet achieved the "free use standard".

In this review, the renminbi missed SDR.

However, the pace of reform can not stop.

In July 2015, the people's Bank of China promoted the opening of the inter-bank bond market, and announced that allowing foreign central banks or monetary authorities, international financial organizations and sovereign wealth funds to enter the Chinese interbank bond market freely, and satisfied their requirements for hedging the interest rate risk of RMB.

Subsequently, the people's Bank opened its interbank foreign exchange market to it.

In February 2016, the people's Bank of China further opened the interbank bond market to foreign private sector investors.

Central Bank

Zhou Chengjun, deputy director of the two division, concluded: "the logic of the above-mentioned series of open policies is that even if the RMB does not appreciate unilaterally, the non residents who hold renminbi assets outside China can enjoy the fruits of China's economic growth."

The conditions for entering the basket have not matured.

The RMB will become the SDR basket currency, and it needs to go beyond three hurdles: first, the representative interest rate and the representative exchange rate of RMB should be provided, so as to facilitate the corresponding valuation and calculation of SDR.

The two is to further facilitate the settlement and settlement of RMB and related businesses for overseas institutions.

Three is to strengthen communication with the market, timely and accurate pmission of economic and financial policy information, better guide market expectations.

When the conditions are met one by one, the RMB will come into the basket.

RMB will become an international financial paction currency.

Basket SDR is not the end of RMB internationalization, nor does it mean a smooth road ahead.

Tu Yonghong, deputy director of the Institute of Finance and economics, Renmin University of China, deputy director of the International Monetary Research Institute, said: "the weight of RMB in the new basket of currencies SDR is 10.92%.

We have studied the internationalization of RMB for 5 years, and compiled the RMB internationalization index which comprehensively reflects the international use of RMB. By the end of last year, the index was only about 3.6%, and the gap from 10.92% is not small.

Basket entry

It has great symbolic significance, but the reality is that capital allocation and flow are pro cyclical.

With the US dollar going strong, the RMB appreciation trend no longer, and the downward pressure on China's economy is still very large. The era of the overseas main body "RMB Appreciation under the pillow" has passed.

At present, some indicators of RMB internationalization have slowed down, and some indicators have even reversed.

For example, the offshore capital pool in Hongkong, China, has shrunk from 33.5% at the end of 2014 to 667 billion 100 million yuan in July this year. In the same period, the scale of RMB deposits in Taiwan and Singapore also declined to varying degrees.

From August 2015 to June 2016, the global share of RMB settlement decreased from 2.8% to 1.7%, while the position of RMB in global settlement currencies dropped from fourth to sixth.

In this regard, Tu Yonghong analysis that, in the past few years, the main holders of foreign currency holdings are mainly driven by appreciation expectations, and now they are entering two-way fluctuations and even devaluation expectations. Investors who originally want to arbitrage will be reduced.

At the same time, the US dollar also recovered the lost territory in 2008, which is very strong, which will make the internationalization of RMB more resistant.

Zhang Ming, director of the International Investment Office of the Institute of world economics and politics of the Chinese Academy of Social Sciences, believes that with the reversal of the expectation of RMB appreciation against the US dollar, cross border arbitrage activities will also reverse, which will lead to a downward trend in the stock market of Hongkong. At the same time, the sharp narrowing of domestic and foreign spreads will also significantly shrink cross-border arbitrage activities.

Some arbitrage activities are disguised through cross-border trade in the way of RMB settlement.

In the short term, SDR should not overestimate the demand of international institutional investors to allocate RMB assets after RMB's basket basket. After all, capital flows are pro cyclical.

After entering the basket, how can the reform of RMB internationalization be pushed forward? Zhong Hong, a senior researcher at the Institute of international finance of Bank of China, believes that the RMB is not internationalized for internationalization, nor is it to accept the conditions put forward by the international community in order to join the SDR. Instead, it should actively and steadily push forward all reforms in this process.

RMB has become an investment currency and reserve currency from the trade settlement currency. Has the goal of internationalization of RMB been realized? Zhou Chengjun thought: "when investors enter the Chinese market and buy renminbi assets, they will have profit making needs.

Therefore, we will further promote the convertibility of capital account, further open up the financial market, and enable overseas non residents to realize risk management and hedging, and to give them the opportunity to make profits.

"No matter how ambitious the goal of RMB internationalization is, what seems to be" pure spring snow "is achieved through the Bibi business of a commercial bank. It is accomplished through market decisions by entrepreneurs, investors and banks.

RMB has become a reserve currency, and it is far from achieving the goal of RMB internationalization.

Next, the renminbi will become an international financial paction currency. "

Zhou Chengjun's eyes have been cast farther.