The international recognition of the Renminbi is constantly increasing. UBS Asset Management recently released a report stating that a survey shows that central banks around the world are planning to further increase their positions in the euro and renminbi over the next year, with 70% of respondents currently investing or considering investing in the renminbi. In the long term (10 years), the average target allocation of RMB among respondents is 5.0% of total reserves.
Regarding the further increase in RMB allocation by central banks around the world, Wang Youxin, a senior researcher at the China Banking Research Institute, stated in an interview with Securities Daily that the main reason is that the Chinese economy is growing steadily and maintaining a high growth rate. With the rapid development of China's economy and the continuous improvement of its comprehensive national strength, the international status of the renminbi has gradually improved, and the confidence of central banks in the renminbi has also increased. Holding renminbi assets can share the dividends of China's economic development.
At the same time, the internationalization process of the RMB has been promoted, providing more channels for overseas investors to hold RMB assets. The RMB has been included in the reserve currency basket by more countries, and its role in international payments, valuation, and reserve currency continues to strengthen, providing impetus for central banks of various countries to increase the allocation of RMB, "said Wang Youxin.
According to the "RMB Internationalization Report 2024" (hereinafter referred to as the "Report") recently released by the International Monetary Research Institute of Renmin University of China, the quarterly average value of RMB Internationalization Index (RII) in 2023 will be 6.27, up 22.9% year on year. Compared with the performance of other major international currencies during the same period, the internationalization of the RMB has shown a strong momentum.
The report analyzes that the driving force for the internationalization of the renminbi mainly comes from the following aspects: firstly, China continues to promote high-quality economic development, fundamentally enhancing the "gold content" of the renminbi as an international currency; Secondly, China is accelerating the pace of high-level financial opening-up with a focus on institutional opening-up, promoting the further improvement and growth of the internationalization of the renminbi; Thirdly, international monetary cooperation is making great strides forward, building a broad platform for the international use of the Renminbi; Fourthly, under the differentiation and fluctuation of financial cycles, the financing function of the RMB has been enhanced, becoming a highlight of the international use of the RMB in 2023.
From the perspective of data indicators, the Chinese yuan is currently the third largest trade financing currency and the fifth largest foreign exchange trading currency in the world. According to the latest monthly report released by the Society for Worldwide Interbank Financial Telecommunication (SWIFT), in June, the Chinese yuan accounted for 4.61% of the global payment currency rankings based on amount statistics, an increase of 0.14 percentage points from May, ranking fourth in the world for the eighth consecutive month. Compared with 2.37% in November 2022, the share of RMB in global payments almost doubled in June this year.
Wang Youxin believes that the stability and long-term growth potential of RMB assets have been widely recognized by global financial markets, which has made central banks of various countries willing to allocate more funds to RMB assets.
The attractiveness of RMB assets can be seen from a series of recent data. The data recently released by the State Administration of Foreign Exchange shows that in the first half of 2024, the scale of foreign investment in RMB bonds was relatively high, with a net increase of nearly 80 billion US dollars in domestic bonds held by foreign investment in the first half of the year, the second highest value in history for the same period. In addition, according to the data from the Shanghai headquarters of the People's Bank of China, foreign investors have increased their holdings of Chinese bonds for 10 consecutive months. By the end of June, overseas institutions had accumulatively increased their holdings of Chinese bonds by more than 1 trillion yuan in the past 10 months, and their total holdings of bonds in the inter-bank market hit a record high of 4.31 trillion yuan.
The increase in RMB allocation by central banks of various countries will further promote the internationalization process of RMB and enhance its position in the global monetary system. This will help promote cross-border capital flows and bring more international capital to China's financial market. Wang Youxin said that international capital inflows will help enhance the depth and breadth of China's financial market, improve market efficiency and openness. In the future, more and more international capital will increase the allocation of RMB assets.
