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Presentation on Internationalization of Renminbi at the 4th Regional Forum on Investment Management of Foreign Exchange Reserves in Tbilisi, Georgia, 20 November 2014

by Thierry de Longuemar, Vice President (Finance and Risk Management), Asian Development Bank
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lt dev

on 28 October 2015

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Transcript of Presentation on Internationalization of Renminbi at the 4th Regional Forum on Investment Management of Foreign Exchange Reserves in Tbilisi, Georgia, 20 November 2014

Internationalization of Renminbi
4th Regional Forum on Investment of Foreign Exchange Reservers
Outline
Introduction
RMB Internationalization measures
Current progress of RMB Internationalization
Conclusion on progress and Next Steps
ADB's Support
Introduction
People’s Republic of China (China) is a globally significant economic and trading power
World’s second largest economy, accounting for 12% of global GDP in 2013

World’s largest exporter and second largest importer, accounting for about 12% of world trade in 2013

With over USD 110 billion in foreign direct investment in 2013, China is the world’s largest developing country recipient of FDI inflows

World’s largest consumer of iron ore, copper and tin; and the world’s largest producer of steel and gold. Is also the world’s second largest oil consumer and is set to become the world’s largest oil importer in 2014. In addition, is one of the largest consumers of liquefied natural gas.

World’s largest holder of FX reserves, with a total of USD 3.8 trillion in reserves at the end of 2013

China has pursued a variety of initiatives designed to encourage the wider use of RMB.
Allowing foreign investors access to domestic capital markets
Increasing flexibility of the exchange rate
Use of RMB as a settlement currency for cross-border trades
Development of RMB deposit accounts
Opening of the offshore RMB market
Opening of offshore RMB centers
Swap arrangements with central banks
Shanghai Free Trade Zone
A. Trade Settlement
Current Progress of RMB Internationalization
In December 2013, RMB overtook the EUR to become the second most used currency in global trade finance after the USD.
RMB in International Transactions
Immediate result of the expansion of RMB in cross border trade settlement is an increase in RMB deposits.
Current Progress of RMB Internationalization
B. RMB Deposits
Current Progress of RMB Internationalization
C. Bond Issuance
Bolstered growth in the RMB market in Hong Kong, China

This growth is attributed to the rapid expansion of RMB trade settlement and accompanying measures that recalibrated other capital flow policy regulations.

Issuances from other countries have also grown through the years

UK issued a government bond denominated in RMB
Financial sectors have been the top issuers of RMB bonds.
Governments also issued a substantial amount of RMB bonds.
Consumer discretionary sector ranks third in RMB issuance.
RMB Internationalization Measures
D. World Currency Payments
Current progress of RMB internationalization
Figure 6: Share of renminbi as world payments currency (%)
Trade settlements have contributed to the rise of RMB as a global currency.

RMB’s ranking in world currency payments has also increased.

In October 2011, it ranked 17th in terms of usage.

Since March 2014, its ranking has shifted to the 7th position.
F. Offshore market
Current Progress of RMB Internationalization
Growth of more than 200% for the past 3 years of the offshore RMB debt market

Developed from a niche into international securities issued by international companies

A well designed network of offshore market will play a useful role in advancing RMB internationalization.
RMB started to appear in the reserve portfolio of certain emerging markets.

It has gained international acceptance with a number of central banks including it in the composition of their foreign exchange reserves.

According to South China Morning Post, 23 countries have publicly declared their holdings in yuan: Australia, Hong Kong, Indonesia, Japan, Korea, Macau, Malaysia, Nepal, Pakistan, Singapore, Thailand, Austria, Belarus, Norway, France, Lithuania, Bolivia, Chile, Ghana, Kenya, Nigeria, South Africa, and Tanzania.

Current Progress of RMB Internationalization
E. RMB Reserve Holdings
Source: http://www.scmp.com/business/banking-finance/article/1466621/central-banks-investment-yuan-puts-currency-nearer-reserve
N.A.=not applicable.
Sources: BBVA. 2013. RMB Internationalization Gains Momentum from Liberalization Steps. 19 November;
http://news.xinhuanet.com/english/business/2014-09/13/c_126981640.htm.
Provides liquidity support for the further development of RMB market

Promotes the use of RMB outside China and facilitates bilateral trade and investment

Some of the significant swap lines are with:

1. Hong Kong
2. South Korea
3. European Central Bank
4. Singapore
5. Australia
6. UK
7. Brazil
8. Malaysia
9. Switzerland
10. Russia
Current Progress of RMB Internationalization
G. Swap Agreement
BSA=bilateral swap agreement; UAE=United Arab Emirates.
Sources: People’s Bank of China; various news articles
Conclusion on progress and Next steps
RMB internationalization has made positive strides, still more work to be done

Positive trends but will develop a critical mass over time

Develop efficient financial system, including interest rate liberalization

Liberalize capital account and move to floating rate regime

Overall, considerable distance still to travel to acquire the status of an international currency

RMB internationalization has important implications for US firms due to the US’s strong trade linkages with China.

US firms will be able to expand their supplier and client base and negotiate better pricing by offering settlement terms in RMB. Chinese firms will benefit by avoiding hedging costs.
RMB Internationalization and the US
Depth and breadth of financial flows between US and China likely to grow further.

Portfolio diversification opportunity.

Closer and stronger ties with China.
ADB's Support
ADB is partnering with China on financial market development and capacity building.
RMB Operations- Financing
Benefits of RMB financing by ADB
RMB Operations- Projects
ADB's Support
Knowledge Sharing
Thank You!
Thierry de Longuemar
Vice President (Finance and Risk Management)

Asian Development Bank
However, its currency, the Renminbi (RMB) has a market share well behind the USD and the Euro.

To align the RMB with China’s growing global stature, China has embarked on a roadmap to achieve RMB internationalization in a controlled fashion.
Table 1: Cross-border RMB trade settlement
China international trade grew at a compound annual growth of 19.1% between 2001 & 2013
Note: Macau data only up to August.
Sources: CEIC, Monetary Authority of Macao.

RTS = RMB trade settlement; RMB = renminbi; CNY = yuan; Bn = billion; HKG = Hong Kong, China; MAC = Macao, China; Mo. = monthly; Ave = average; China = People’s Republic of China.

Note: RTS covers goods and services trade, while total trade refers to merchandise trade only. For consistency, all trade data were sourced from China statistics.
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