China's RMB internationalization stays strong
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E-mail CCTV.com, March 12, 2016
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The Chinese renminbi (RMB) has joined the ranks as one of the most-widely used currencies in global markets. The United States dollar remains the world's top currency and would continue to hold that position for the years ahead, but China's economic rise has boosted the RMB's value as well.
CNBC reports that the RMB stands as the world's largest trade-finance currency after the US dollar. China's currency is expected to surpass the Japanese yen as the world's 4th-most used international currency.
According to a report published last July, the IMF's currency internationalization index revealed that in 2014, the RMB had accounted for 2.96 percent of worldwide trades, along with total direct investments valued at $US1.05 trillion. We can anticipate those numbers to soar higher in the future and for good reasons.
Reserves currency basket gets new member
The IMF has played a pivotal role in RMB internationalization. Last November, the organization agreed to include the currency into its Special Drawing Rights (SDR) reserve currency basket, alongside the US dollar, euro, British pound, and Japanese yen, and scheduled for inclusion this October.
IMF Managing Director Christine Lagarde endorsed the move as a "clear representation of the reforms" in China.
She said, "The continuation and deepening of these efforts will bring about a more robust international monetary and financial system, which in turn will support the growth and stability of China and the global economy."
The IMF has sent a positive message to the world that China's currency deserves greater respect and recognition.
Taking the RMB abroad
The IMF made a smart move to invite the RMB into its currency reserves basket. For China's currency to be listed as an SDR, the organization had imposed stringent entry requirements.
The People's Bank of China (PBOC) had to deliver loads of RMB into the vaults of central banks of other countries to ensure that it can be a "freely usable" currency. Chinese tourists benefit, since they can exchange their RMB into foreign currency at banks and currency exchange counters located all over the globe.
Additionally, an increasing number of Chinese companies have made foreign direct investment deals via cross-border financial transactions. Chinese corporate outbound investments could result into profitable ventures later on, with RMB cash flow flooding back into the country.
Meanwhile, Beijing has entered the early stages of introducing a new bankwire system, known as China International Payments System (CIPS) that could replace the current international bankwire service, (SWIFT), when Chinese businesses operating abroad send remittances back home.
Expect steady RMB valuations
However, there's been much ado from the Western media about the value of China's currency dropping against the US dollar. RMB valuations have fallen nearly eight percent since last August. According to MoneyConverter.com, as of 4:00 pm Beijing-time, March 10, 2016, the conversion rate of RMB from the US dollar stood at 6.51425.
Nevertheless, PBOC Governor Zhou Xiaochun has repeatedly said that "there was no basis for further (RMB) depreciation." His remarks infer that the medium and long-term outlook for China's currency would likely stabilize.
So we could expect China's economy to remain robust, while Beijing moves ahead on significant structural reforms including supply-side measures.
Pegging RMB to GDP growth trends
As the RMB emerges into a global powerhouse currency, its valuations against international currencies may move up and down to parallel closely with China's economic trends.
Whether that comes true is hard to say, but what remains certain is that RMB internationalization is here to stay and would continue to rise in global prominence for a long time to come.
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