On February 18, BOC released the Cross-border RMB Index (CRI) for the fourth quarter of 2013. According to the statistics published by BOC, CRI in 4Q 2013 climbed up the 200 reading for the first time and stood at 228 points, reaching a historic new high, which marked the accelerated internationalization of RMB.
Year-on-year CRI Increase Rate Sets New Record
After a relatively rapid increase in the first quarter, and steady performance followed by moderate fluctuations in the second and third quarters, CRI was again on the rise, which signaled the fast increasing activity in RMB use for cross-border and offshore transactions by both domestic and overseas clients.
According to the data, CRI gained 82 points in the fourth quarter of 2013 as compared with the same period of last year, representing an increase of 56%, which set a historic new high. 4Q CRI increased 38 points, or 20%, as compared with the third quarter.
The fourth quarter of 2013 witnessed increasingly obvious internationalization of RMB supported by goods trade. China's gross import and export volume of goods trade exceeded US$4 trillion for the first time in 2013, making it the biggest goods trading country in the world. The continuous rise of China's share in global goods trade has laid a significant foundation for the enhanced activity in cross-border RMB use. In the fourth quarter of 2013, RMB settlements for import and export goods trade in China increased 30% over the third quarter, pushing up CRI by around 20 points.
Judging from the whole process of RMB's "outflow, circulation, and backflow", activity in the circulation and use of RMB in overseas markets demonstrated a marked quarter-on-quarter increase in the fourth quarter of 2013. RMB-denominated settlements in overseas markets increased 0.15 percentage points, contributing substantially to the rising CRI.
China’s Cross-border RMB Settlements Exceed RMB5 Trillion
China's cross-border RMB settlements amounted to RMB5.16 trillion in 2013, accounting for a significant year-on-year rise of 61%, which marked an increased use of RMB in the country's foreign trade and economic activities.
In terms of current accounts, the share of RMB settlements in China's import and export trade rose from 5.5% in 2011 to 11.7% in 2013, making RMB the second biggest currency of settlement in the country's foreign trade. In terms of capital accounts, RMB-denominated direct investment in China increased 60% approximately year on year while outbound RMB-denominated direct investment increased 130% year on year in 2013. More and more overseas clients have accepted RMB as their investment currency.
Throughout 2013, the outflows of RMB persistently outnumbered its inflows during the global circulation of the currency, signaling an obvious acceleration of RMB internationalization. According to BOC's estimate, more than RMB500 billion capital flowed into overseas markets through trade and investment channels in 2013. Among which, net RMB outflows under current accounts amounted to RMB850 billion approximately while net RMB inflows under capital accounts were around RMB350 billion, demonstrating a doubled increase in the scale of net RMB outflows as compared with 2012. Take Hong Kong for instance, RMB-denominated deposits in Hong Kong amounted to RMB860.5 billion at the end of 2013, representing a year-on-year increase of 43%. Based on the estimate of BOC, the current amount of RMB-denominated funds in overseas markets may have exceeded RMB1.5 trillion.
In 2013, the gap between RMB and major international currencies by global use activity was further reduced. By BOC's estimate, the activity index of US dollar was about 1436 in the fourth quarter of 2013, up 2% over the second quarter; 981 for Euro , down 3% from the second quarter; 675 for GBP, up 3%; 422 for JPY, down 5%. However, the CRI of RMB rose about 23% from 186 to 228 during the same period. According to the market survey result released by the Bank for International Settlements, RMB has become the ninth biggest foreign exchange currency. The data disclosed by SWIFT also shows that RMB has become the eighth biggest currency for international settlement.
Promising Prospect for RMB Internationalization
The positive expectation of overseas institutions for RMB internationalization and their relatively strong willingness to hold and use RMB have laid the foundation for sustained and deepened internationalization of RMB. According to a survey on about 3000 enterprises worldwide by BOC in 2013, over 70% of the surveyed enterprises agreed on the important position of RMB as an international currency in the future, while 61% of the respondents planned to use RMB or increase its use in their cross-border trade and settlements. The reason behind their positive willingness lies in the continuously deepening economic and trade ties with China, as 79% overseas enterprises expressed that their acceptance of RMB was mainly due to their economic and trade ties with China’s Mainland.
In 2014, the effect of a series of favorable policies for the internationalization of RMB will further deliver, as the process of building an open and new economic system, liberalization of RMB interest rate and exchange rate, and RMB capital account liberalization proposed at the Third Plenary Session of the 18th Central Committee of the CPC will be advanced steadily, bringing more convenience to the cross-border use of the currency. The pilot zone for innovative policies as represented by the China (Shanghai) Pilot Free Trade Zone ("CSPFTZ") will create new spheres for RMB internationalization, and innovation of relevant international RMB products will be accelerated. The government's promotion of building a "Silk Road Economic Belt" and a "Maritime Silk Road", and upgrading the China-ASEAN Free Trade Area, among other strategic measures, will greatly boost the use of RMB in Central Asian and ASEAN regions.
China has become the biggest commodity trading nation and the second largest economy of the world. The year of 2014 will see China's share of the world's gross economic output and trade volume grow steadily, with increasingly more countries and regions willing to use RMB. This will not only allow these countries and regions to deepen their investment and trade ties with China, and share the "dividends" of China’s economic growth, but also enable the emerging economies to leverage the enormous bulk of the Chinese economy to boost the safety and stability of their economic operations by linking with China using RMB. Against such a backdrop, new breakthroughs are expected in the drawing of RMB-denominated funds under currency swap agreements and the growth of RMB-denominated asset allocation in foreign exchange reserves.
BOC's Position as a Major Channel Further Consolidated
By firmly highlighting and pushing ahead business development relating to RMB internationalization, BOC has achieved remarkable results.
1) Constant leader by market share. The cross-border RMB settlement volume within the BOC group exceeded RMB3.98 trillion in 2013, up around 60% over the previous year, of which BOC's domestic institutions accounted for RMB1.77 trillion, representing a market share of close to one third, leaving its peers far behind.
2) Gradual delivery of profit. RMB internationalization-related business has not only brought intermediary business revenue and interest rate income to BOC, but also driven the rapid development of other business segments such as overseas RMB deposits/loans, treasury transactions and wealth management, which has effectively enhanced BOC's global services capability and expanded overseas client base. The Bank's overseas entities have entered into local mainstream markets by drawing on the RMB-related business. BOC anticipates that the next couple of years will be a critical period to realize scale-to-profit transition for its RMB internationalization-related business and the benefits of the currency's internationalization will materialize more apparently in the growth of its overseas business.
3) Improved facilities. BOC is not only the sole RMB clearing bank in Hong Kong, Macau, Taiwan region and Malaysia, but also a RMB clearing bank in Russia, Luxembourg, the Philippines, Cambodia, and Kazakhstan, having established an integrated RMB clearing network covering the whole world. Thanks to its continuously improved clearing facilities, BOC has fulfilled ever smoother RMB payment and circulation overseas, and provided more comprehensive supporting services.
4) More vigorous innovation. BOC has launched all-round research and development of RMB products by leveraging its diversified service platforms and outstanding innovation capabilities. In 2013, BOC successfully completed the first cross-border two-way RMB cash pooling deal in CSPFTZ, and was the first among its peers to launch cross-border RMB settlement business under spot commodity exchanges. So far, BOC has become a major conduit for RMB internationalization-related products and RMB-denominated capital distribution overseas.
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