Original title: RMB exchange rate index hits a new high, and overseas companies are becoming more enthusiastic about using RMB
As China’s foreign trade boom continues and the economy continues to grow steadily, the exchange rate of the renminbi against a basket of currencies is reaching new highs.
Recently, the China Foreign Exchange Trading Center released the latest data showing that as of November 12, the CFETS RMB exchange rate index was 101.08, a new high since December 2015. Since the beginning of this year, the CFETS RMB exchange rate index has increased by more than 6%, the largest increase in many years.
“This means that the RMB exchange rate against a basket of currencies has almost recovered all the ground lost since the exchange rate reform in August 2015.” A foreign exchange trader at a large state-owned bank told reporters. This also fully reflects the trend of changes in the global foreign trade pattern after the outbreak of the epidemic. After the outbreak, a large number of foreign trade orders from the world poured into China, which made China’s foreign trade continue to be prosperous and at the same time drove the strong demand for foreign exchange settlement by foreign trade companies, making the yuan equal to a basket of currencies. Shows an upward trend.
Reporters have learned from many sources that as the RMB exchange rate against a basket of currencies continues to rise, more and more global asset management institutions and sovereign wealth funds are actively increasing their RMB assets and using the RMB as an important tool to hedge against the risk of falling currency exchange rates of other countries.
“In fact, this also creates an interesting phenomenon. Every time the RMB exchange rate against a basket of currencies is in an upward cycle, the enthusiasm of many global institutions to include more RMB as a reserve currency becomes extremely high.” A Wall Street macroeconomic hedge The fund manager spoke bluntly to reporters.
It is worth noting that the continuous rise of the renminbi against a basket of currencies is triggering more and more domestic and foreign companies to actively expand the renminbi settlement of cross-border trade and investment.
According to data released by the Central Bank, in the first 10 months of this year, cross-border trade in goods, trade in services and other current accounts, foreign direct investment, and foreign direct investment settled in RMB accounted for 4.64 trillion yuan, 1.7 trillion yuan, and 12,500 yuan respectively. 100 million yuan, 3.32 trillion yuan.
“The reason is that more and more domestic and foreign companies like to hold strong currencies to carry out trade and investment settlements in order to avoid the risk of exchange losses caused by the decline in exchange rates.” A joint-stock bank’s director of the corporate business department analyzed to reporters. . As the exchange rate of the renminbi against a basket of currencies continues to strengthen, more and more foreign trade companies have increased the proportion of renminbi settlement when signing foreign trade contracts next year, “alternatively” incorporating exchange rate fluctuations into the pricing terms of foreign trade commodities.
Why the RMB exchange rate against a basket of currencies soared
According to the foreign exchange traders of the above-mentioned large state-owned banks, the reason why the cumulative increase of the CFETS RMB exchange rate index has exceeded 6% this year is also strongly related to the adjustment of the currency basket weight of the CFETS RMB exchange rate index by the relevant departments at the end of last year.
At the end of last year, the Foreign Exchange Trading Center issued an announcement stating that the weight of the currency basket of the CFETS RMB exchange rate index will be adjusted, and the new index will take effect from January 1, 2021. Specifically, the US dollar’s CFETS index weight dropped from 0.2159 to 0.1879; the euro weight rose from 0.1740 to 0.1815.
“This has led to a significant reduction in the downward pressure on the CFETS RMB exchange rate index due to the rebound of the US dollar this year. On the contrary, the exchange rate of non-US currencies such as the Euro has dropped significantly, which invisibly contributed to the expansion of the CFETS RMB exchange rate index.” He analyzed.
Reporters have learned from many sources that, compared with the adjustment of the currency basket weight, the continued high prosperity of China’s foreign trade has played a more important role in boosting the continued rise of the CFETS RMB exchange rate index. The high foreign trade surplus has caused the RMB to continue to show an independent upward trend against a basket of currencies, driving the CFETS RMB exchange rate index to rise steadily.
“Especially since September of this year, despite the Fed’s reduction in QE expectations, the U.S. dollar index has rebounded sharply, but the boom in foreign trade has pushed the renminbi exchange rate and the U.S. dollar index to rise at the same time, further pushing the CFETS renminbi exchange rate index to continue to set new highs for the year.” Analysis of Wall Street macroeconomic hedge fund managers said. Although the CFETS RMB exchange rate index has reached its highest point since the end of 2015, many global financial institutions believe that it is still within a reasonable range-because it fully reflects the continuous growth of China’s economic fundamentals (better than other countries), the continuation of high foreign trade prosperity and other factors .
“In fact, this also shows that the People’s Bank of China has indeed withdrawn from the normalization of the exchange rate intervention and has given the market the right to set the RMB exchange rate against a basket of currencies.” He said bluntly.
The reporter has learned from many sources that many overseas hedge funds are currently actively buying CFETS RMB exchange rate index call option derivatives with an execution price of 101.5-102 in the over-the-counter market. Their buying and investment logic is not complicated—when the economies of various countries When the growth is still facing high uncertainty due to the epidemic, the sustained and steady growth of the Chinese economy and the continuation of the boom in foreign trade will drive the CFETS RMB exchange rate index to continue to rise to new highs.
The enthusiasm of overseas companies to use the renminbi has increased
Reporters have learned from many sources that as the RMB exchange rate against a basket of currencies continues to rise, more and more foreign companies are “increasing” interest in the use of RMB settlement for cross-border trade investment.
“During the past two months, we have contacted many overseas sellers, all of whom have taken the initiative to include the renminbi as the currency for cross-border trade settlement next year.” A head of a domestic raw material procurement company told reporters. At that time, he was quite surprised. In the past, these overseas sellers insisted on charging U.S. dollars and Euros as the settlement currency.
Later, he learned that these overseas sellers are currently worried about the risk of exchange rate declines in the U.S. dollar and the euro. For example, the risk of a US debt default in December may cause the U.S. dollar to return to its downward trend. The euro is facing a lot of problems due to repeated epidemics and the European Central Bank’s easing monetary policy. Devaluation pressure. In contrast, the RMB exchange rate against a basket of currencies keeps rising, but it can help them hedge against the risk of a basket of currencies falling.
A Chinese construction and engineering company’s overseas business executive also bluntly told reporters that as the CFETS RMB exchange rate index continues to rise, more and more overseas engineering contractors are also willing to use RMB for project settlement. In the past, the collection of their participation in overseas hydropower projects was mainly 30% U.S. dollars + 70% local currency (local currency is mainly used to pay local employees’ salaries and local raw material purchases), and now some overseas hydropower projects’ collections have become 20% USD + 10% RMB + 70% local currency.
“This also helps us use RMB to cross-border procurement of domestic engineering equipment, reducing exchange rate risks.” He pointed out. In addition, receiving RMB also saves them a renminbi-dollar exchange rate risk hedging operation expense, which improves the project’s profit margin.
According to the overseas business director of a Chinese construction engineering company, as the RMB continues to rise against a basket of currencies, the popularity of the RMB in many countries is currently increasing-although the currency exchange process in many countries is relatively complicated, many locals Traders still quietly collect RMB so that they can use the RMB to purchase more Chinese goods in the future.
In the view of a foreign banker, although the rise in the exchange rate of the RMB against a basket of currencies has boosted the attractiveness of foreign companies to use the RMB, whether the RMB can be used well in more trade and investment scenarios in many countries still depends on the ability of local banks. Whether to provide cross-border RMB business financial services such as RMB cash management, trade financing, and short-term loan products.
“Fortunately, more and more national banks are now accessing the RMB cross-border payment system CIPS to prepare for the landing of RMB business.” He pointed out. In addition, as the exchange rate of the renminbi against a basket of currencies continues to rise, more and more countries are incorporating more renminbi into their foreign exchange reserve assets, making it easier for local companies to obtain renminbi positions for various types of cross-border trade and investment settlements.
(Author: Chen Zhi Editor: Zhang Xing)
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