China Chartbook: An update on the internationalization of the RMB


RMB has become a more attractive investment currency as evidenced by the increased foreign ownership in CGB.
Nathan Chow05 Aug 2020
  • China-US tussles have spilled over into the financial sphere; this has ignited…
  • … a fresh push by Beijing to internationalize the RMB
  • RMB has become a more attractive investment currency
  • While off its 2015 highs, the RMB is now the sixth most used currency in international payments
  • ASEAN is now China’s largest trading partner. This an opportunity to enhance the RMB's use
Photo credit: AFP Photo


• China-US tussles have spilled over into the financial sphere; this has ignited a fresh push by Beijing to internationalize the RMB.

• RMB has become a more attractive investment currency as evidenced by the increased foreign ownership in CGB.

• While off its 2015 highs, the RMB is now the sixth most used currency in international payments and is used for settling approximately 20% of China's trade.

• ASEAN is now China’s largest trading partner. This has created an opportunity to enhance the RMB's use in cross‐border trade settlement.



• Offshore deposits peaked at RMB1.6tn in 2015 and have since hovered around RMB1.1tn due to the tightening of currency outflow rules to staunch capital flight.



• Stringent control measures have also reduced the issuance of offshore bonds. The outstanding amount of dim sum bonds have declined sharply between 2016-2019, which in turn, had a negative impact on CNH liquidity.



• Although the growth in offshore deposits has decelerated, the share of RMB in global central banks’ reserves have almost doubled to 2% (or ~USD200bn) in 2019 from 1% in 2016.



• RMB reserve allocations have benefited from the step by step opening up of the onshore markets, as well as the currency’s relatively high returns compared with other reserve currencies.



• Investment flows to China have risen from the opening of more channels i.e. the Stock Connect and Bond Connect, and increased quota for foreign institutional investors.

More index providers have included Chinese securities in their most widely used equity and fixed income benchmarks.





• Thanks to the liquidity measures arranged between PBOC and HKMA, offshore funding cost volatility have decreased notably.



• About 20% of total trade were settled in the RMB in 2019. ASEAN has, as China’s largest trading partner, created an opportunity to enhance RMB cross-border trade.

Corporates trading with China enjoy several advantages when they pay in RMB instead of other currencies e.g. reduced costs, access to a larger supplier base in the mainland and simplified internal processes.



• RMB is now the third-most-active currency in trade finance (i.e. letters of credit and collections) after the US dollar and the euro, with a share of 1.9%.



• RMB-denominated direct investments were launched in 2011. ODI peaked in 2016 on a buying spree and fell in 2017 from the stricter guidelines imposed by regulators. While ODI recovered in 2018-19, they did not return to 2016 levels.



• Financial institutions are key enablers in cross-border transactions. As of July 2019, the number of financial institutions using the RMB for payments totaled 2214, up from 1989 in July 2017. The biggest increase was seen in Africa and the Middle East (20.1%) and driven by the Belt and Road Initiative.



• Hong Kong is regarded as the world’s largest offshore RMB center in terms of volume, followed by the UK and Singapore.



To read the full report, click here to Download the PDF.

Subscribe here to receive our economics & macro strategy materials.
To unsubscribe, please click here.


Nathan Chow

Strategist/Economist
nathanchow@dbs.com

The information herein is published by DBS Bank Ltd and PT Bank DBS Indonesia (collectively, the “DBS Group”). It is based on information obtained from sources believed to be reliable, but the Group does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation & the particular needs of any specific addressee. The information herein is published for the information of addressees only & is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Group, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Group or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Group & its associates, their directors, officers and/or employees may have positions or other interests in, & may effect transactions in securities mentioned herein & may also perform or seek to perform broking, investment banking & other banking or finan­cial services for these companies. The information herein is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. Sources for all charts & tables are CEIC & Bloomberg unless otherwise specified.

DBS Bank Ltd., 12 Marina Blvd, Marina Bay Financial Center Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E. DBS Bank Ltd., Hong Kong Branch, a company incorporated in Singapore with limited liability. 18th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong.

PT Bank DBS Indonesia, DBS Bank Tower, 33rd floor, Ciputra World 1, Jalan Prof. Dr. Satrio Kav 3-5, Jakarta, 12940, Indonesia. Tel: 62-21-2988-4000. Company Registration No. 09.03.1.64.96422