Why Does Joining SDR Become The Goal Of RMB Internationalization?

Recently, representatives of the International Monetary Fund (IMF) revealed that the renminbi could soon be added to the IMF SDR.

For China, the inclusion of SDR is not the ultimate goal.

Joining the SDR is a process of internal reform, which will provide a new catalyst for China's opening up.

In a sense, joining SDR is equivalent to IMF formally endorsing the renminbi as an international reserve currency.

SDR has the characteristics of super sovereign reserve currency. It is a token of the influence of the international currency and a "right" that can be freely convertible into the international reserve currency.

IMF assigns SDR based on the proportion of member countries' share to be used as a supplement to reserve assets other than "ordinary drawing rights".

As a holder of SDR, member states can exchange foreign currency quotas to other member countries designated by IMF in exchange for foreign exchange, repay IMF loans and pay interest, and act as international reserves in the event of an international balance of payments deficit.

IMF conducts an assessment of SDR every five years.

According to the standard, the monetary composition of the SDR basket must meet two conditions: first, the currency to be added must be the currency issued by IMF participating countries or monetary union, which is one of the world's four largest exporters of goods and services during the inspection period, in line with the "main trading country" standard; and two is the currency widely used in international pactions and widely traded in the main foreign exchange market, which is the "free currency" stipulated in thirtieth article F of the fund agreement.

As far as the first condition is concerned, China is the world's largest commodity exporter and the fifth largest exporter of services. Both of them share the status of the third largest exporters of goods and services in the world, second only to the European Union and the United States.

The key lies in second criteria, that is, RMB should be widely used in international payments and in the main.

A wide range of pactions.

At present, the renminbi is approaching this standard.

Data from the global Interbank Financial Telecommunication Association (SWIFT) show that the renminbi is currently the second largest trade finance currency in the world.

In the global payment market, the market share of RMB has increased from 0.84% in August 2012 to 1.39% in January 2014, and then to 2.79% in August 2015.

In August this year, the renminbi exceeded the yen for the first time to become the fourth largest payment currency in the world.

Cross border trade settlement and cross border deposits grew rapidly.

According to statistics, the central bank has signed currency swap agreements with the monetary authorities of 32 countries and regions, totaling 3 trillion and 100 billion yuan.

In 2014, the amount of RMB settlement in cross-border trade amounted to 6 trillion and 550 billion yuan, an increase of 41.6% over the same period last year.

Offshore renminbi bonds and other Renminbi asset markets are booming.

By the end of 4, the balance of RMB assets held by offshore central banks or monetary authorities was about 666 billion 700 million yuan.

In addition, establishing RMB clearing arrangements with China and Asia and Europe, approving RMB qualified foreign institutional investors and agreement on currency swap agreements are important steps in the process of RMB internationalization.

In particular, there has been a major breakthrough in Europe in the past two years.

The cross border RMB index released by the Bank of China points out that the actual receipts and payments of cross-border RMB in Europe and Mainland China have increased rapidly, and the actual receipts in Britain, Germany, Luxemburg and France have doubled, accounting for 8% of the total cross-border RMB receipts and payments in the mainland of China.

Since 2014, China has signed the RMB clearing agreement with the United Kingdom, Germany, Luxemburg, France and Switzerland respectively, forming the "five feet stand up" offshore RMB center structure.

A Renminbi currency swap network covering Europe is taking shape.

In fact, the pace of reform of the RMB formation mechanism by the central bank has not stopped.

As early as 1994, China opened the market-oriented reform of the RMB exchange rate formation mechanism, and began to implement a single and managed floating exchange rate system based on market supply and demand.

In July 2005, the exchange rate reform was carried out, and a market based floating exchange rate system with reference to a basket of currencies was introduced, and the daily fluctuation of RMB against the US dollar in the inter-bank spot foreign exchange market was limited to 3/1000.

Since then, the amplitude has continued to expand to 2% in 2007, 2012 and 2014.

Recently, the central bank has further improved the RMB intermediate price mechanism and improved the relevant technical requirements proposed by IMF.

At present,

The main obstacle to the SDR threshold is capital account convertibility.

The solution is capital account liberalization.

It not only eliminates the technical barriers to RMB entry into SDR, but also helps to eliminate some countries' demand for capital account convertibility.

Therefore, capital account liberalization has become the key to deciding whether RMB will enter SDR.

After the international financial crisis in 2008, China has been actively promoting capital account liberalization, promoting trade and investment facilitation, and expanding imports of advanced technology and key equipment, essential resources and raw materials.

Under the premise of controllable risks, RMB capital account convertibility will be gradually realized, and domestic qualified enterprises will be able to take advantage of the sharp fall in foreign asset prices to expand international mergers and acquisitions with low risks and stable returns, and orderly relax domestic institutions and individuals.

Limitations.

We should actively improve the financial risk control mechanism and macro Prudential management framework to pave the way for RMB to enter the basket industry.

According to the Standard Chartered Bank's calculation, if RMB joins SDR, the international reserves of at least 1 trillion US dollars will be pferred to RMB in the future, which will better reflect the change of world economic structure.

At the same time, the inclusion of RMB in the basket of SDR currencies will enhance the representativeness of the SDR currency basket and play an important role in stabilizing the world financial situation.