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RMB Internationalization: Backgrounds, Developments and Prospects

RMB Internationalization: Backgrounds, Developments and Prospects. Mingyou BAO Chief Representative People’s Bank of China Representative Office for Europe. RMB Internationalization: Backgrounds. Market-driven and response to the outbreak of the financial crisis;

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RMB Internationalization: Backgrounds, Developments and Prospects

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  1. RMB Internationalization: Backgrounds, Developments and Prospects Mingyou BAO Chief Representative People’s Bank of China Representative Office for Europe

  2. RMB Internationalization:Backgrounds Market-driven and response to the outbreak of the financial crisis; Restore fair treatment of the RMB in economic transactions; Reduce dollar reserves accumulation and enable the authorities to manage the domestic economy more effectively . Promote domestic economic reform

  3. RMB Internationalization:Policy Framework Two principles: serve the real economy, risk controllable Administrative Measures on Pilot RMB Cross-border Trade Settlement ( July, 2009 ): enabling enterprises in four cities of Guangdong Province, including Guangzhou, Shenzhen, Zhuhai and Dongguan to settle cross-border trade transactions in RMB as a pilot program.

  4. RMB Internationalization:Policy Framework Notice on Relevant Issues Concerning the Expansion of Pilot Cross-border RMB Trade Settlement ( June, 2010 ): allowing another twenty provinces, autonomous regions and municipalities to be included in the pilot program and at the same time, lifting restrictions on the use of RMB settlement in certain outward investment destinations. In August 2011, the pilot program has extended to the whole country.

  5. RMB Internationalization:Policy Framework Administrative Measures on Pilot RMB Settlement of Overseas Direct Investment ( January, 2011 ) : facilitating domestic institutions' outward direct investment in RMB. Administrative Measures on the RMB Settlement of Foreign Direct Investment ( October, 2012 ): establishing legal framework for foreign direct investment in RMB in China.

  6. RMB Internationalisation:Policy Framework Provisional Rules on Cross-Border RMB Lending in Qianhai (December 2012), to expand international use of RMB in cross-border lending and equity financing; Pilot Program of Securities Investment in China by RQFIIs(March 2013 ), a revision of the RQFII on including more institutions in the program and removing restrictions on investments;

  7. RMB Internationalization:Policy Framework Circular Concerning the Simplification of Cross-Border Use of RMB and Improvement of Relevant Policies ( July, 2013 ): provide a series of new measures to help simplify cross-border RMB transactions and to improve the efficiency of the implementation of relevant policies.; Financial Support for Development of the Pilot Shanghai Free Trade Zone (December 2013), outlining concrete opening and reform measures to support cross-border financial transactions. Joint Announcement of Pilot Stock Market Linkage between mainland China and Hong Kong （April 2014），Paying the way for cross border securities investment by retail investors

  8. RMB Internationalization:Developments ( Outflow） Net outflow of RMB under trade account has increased from less than 2 billion in 2009 to more than 1083 billion yuan ($174 billion ) in 2014; RMB ODI increased by 113% in 2014 to 183.6 billion yuan ($29.5billion) ; Balance of external financing in RMB, mainly by China Development Bank and China Import & Export Bank, totaled more than 150 billion yuan by the end of 2014;

  9. RMB Internationalisation:Developments To further expand overseas RMB liquidity supply, the People's Bank of China has signed bilateral currency swap agreements with 31 central banks and/or monetary authorities by the end of February 2015, totaling 3.2 trillion yuan ($519billion).

  10. RMB Internationalisation:Developments (Reflow) By the end of 2014, the People’s Bank of China has permitted 211 overseas institutions, including central banks, sovereign wealth funds, international financial organizations as well as RMB clearing and participating banks to invest about $100 billion in China’s domestic interbank bond market . The RMB settlement for foreign direct investment(FDI) and overseas direct investment(ODI) amounted to 875 billion and 183 billion respectively in 2014.

  11. RMB Internationalisation:Developments RQFII Investments RQFII Quota increased dramatically in 2014, 103 institutions were approved to invest 311.5 billion yuan under the scheme (Feb 2015); Total RQFII quota reached 800 billion yuan. In 2014, a total of more than 300 billion yuan reflowed to mainland China through FDI, investment in interbank bond market , RQFII and bond issue in offshore centres

  12. RMB Internationalization: Developments Off-shore pool of RMB liquidity now reaches over 2 trillion yuan, but still tiny compared with more than 120 trillion of bank deposits and about 200 trillion yuan financial assets in mainland China. SWIFT statistics indicate the use of RMB in international payment has risen to 2.06% and RMB has become the fifth most frequently used currency. And RMB has already overtaken EURO as the second most used currency for trade finance.

  13. RMB Internationalisation: Developments

  14. RMB Internationalization:Developments BOC CRI INDEX: the level of usage and activity of RMB in cross border transaction. Source: Bank of China

  15. RMB Internationalisation:Developments In general, more channels have been created to facilitate RMB outflow and reflow. Outflows mainly concentrated in trade and other current account payments, ODI and external financing in RMB while reflow of RMB was mainly facilitated through the RQFII program, investment in interbank bond market and bond issuance in offshore centres .

  16. RMB Internationalization: ProspectsMicro level: Increase Liquidity Supply and Streamline Reflow process Cut red tapes on approval process for cross-border use of RMB; Expand RMB payment in tourism, shopping and study in foreign countries; Explore measures to enable overseas public listed company to pay interests and dividend in RMB; Encourage policy banks and other financial institutions to expand RMB external financingand facilitate overseas development aid in RMB;

  17. RMB Internationalization: ProspectsMicro level: Increase Liquidity Supply and Streamline Reflow Promote RMB bond issue in domestic and international market; Encourage use of RMB as a denominated currency in global outsourcing and commodity transactions; Encourage use of swap lines and expand financing channels for clearing banks and RMB participating banks in domestic market;

  18. RMB Internationalization: ProspectsMacro level: Reform, Growth, Infrastructure and Soft Power Expand economic and financial opening up and reform : capital account, interest rate and exchange rate; Sustain strong and stable economic growth; Upgrade market infrastructure for cross border use of RMB: CIPS, bond market development, regulation clean-up;

  19. RMB Internationalization: ProspectsMacro level: Reform, Growth, Infrastructure and Soft Power • Improve institutions and international coordination. • “One Belt and One Road” strategy . • IMF SDR review later this year • History may provide a guidance

  20. RMB Internationalization: ProspectsMacro level: “One Belt and One Road” strategy

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