The internationalization of the RMB maintained a stable footing in the global monetary system amid the negative impacts of 2017, and will continue to increase momentum in 2018 thanks to an improved policy system and the opening of the financial market, according to the 2018 RMB Internationalization Report which was released on Saturday.
The economic foundation of RMB internationalization is solid. Germany, France and a growing number of emerging market economies have expressed their confidence in the currency and included the RMB in foreign exchange reserves.
The report shows that thanks to China's steady economic growth, the launch of the Belt and Road Initiative, and the opening of financial market, the RMB internationalization index (RII) reached 3.13 as of the fourth quarter of 2017, up 44.80 percent year-on-year, basically returning to the 2015 level.
In 2017, China’s direct investment in countries and regions along the Belt and Road reached 14.4 billion US dollars, and the bilateral trade volume hit 7.4 trillion yuan, a year-on-year increase of 17.8 percent.
China has provided RMB liquidity support to 212 economies along the route through the currency swap mechanism. The use of the RMB in bilateral trade settlement has increased significantly.
Under the background of the enhanced comprehensive national strength and continued progresses in reform and opening up, driven by the internal impetus for stabilized and rebounded market demand and coupled with improved policy system and infrastructure, the cross-border and offshore use of RMB has enjoyed positive conditions, the report explains.
Besides for this, the opening of financial markets also provides a powerful driving force for the internationalization of the RMB.
In 2017, China accelerated the opening of its capital market on the basis of risk control and prevention. The bond market has made breakthrough progress, and the Bond Connect officially operated to realize the interconnection between the Chinese mainland and the Hong Kong bond market.
The reports also points out several hurdles facing the internationalization of the RMB.
The monetary policies of the major economies are faced with changes, which impedes to some extent the cross-border and offshore use of the RMB.
The Fed has started the interest rate hike process, and the European Central Bank (ECB) and the Bank of Japan (BOJ) have tended to withdraw from a quantitative easing policy. It will have a greater impact on exchange rates, interest rates and asset prices, and the uncertainty of short-term capital flows will rise.
Due to macro-prudential supervision, innovation capability, market structure and other factors, there is still a gap between the domestic RMB financial product system and that of the US dollar and the euro. The cross-border flow of the RMB is also reduced.
In the context of the complex and volatile global financial situation, China has strengthened capital management, improved the compliance auditing of cross-border capital flows, and that has restrained the cross-border and offshore use of the RMB.
Although the China International Payment System (CIPS) has been put into use, problems such as relatively single business, separation of the securities clearing and settlement system, and lack of unified transaction processes and policies aligning with international practices cannot be ignored.
