Civil Evolution of the RMB Internationalization

CEIC China Data Talk - October 28, 2015 Renminbi internationalization is not just national policy. It is also perceived as China’s image, the public’s confidence, as well as the political consideration of the Chinese government. While the Chinese government has been promoting RMB internationalization vigorously, the Chinese people are simultaneously moving at an accelerated pace towards internationalization. This acceleration is very well demonstrated by the settlement of foreign exchange transactions among the foreign receipts of both the enterprises and the individuals, i.e. the settlement ratio. Now, let’s use two sets of data - banks’ collection of foreign currency receipts on behalf of enterprises and individuals, and foreign currency settlements to calculate the settlement ratio.
  • The monthly average settlement ratio of enterprises and individuals’ foreign currency receipts is around 71% between the period of January 2014 to June 2015.
  • Prior to the drastic move of RMB depreciation on August 11th, the settlement ratio had already fallen dramatically from 76.3% in June to 70% in July.
After the RMB intervention and the tightening of foreign exchange controls by the People’s Bank of China, the declining trend continued through August (69%) and September (61.8%). The settlement ratio of foreign currency receipts can be interpreted as the willingness of enterprises and individuals in settling their foreign exchange transactions. We can assume that the higher the ratio, the more optimistic these enterprises and individuals are towards the future value of the RMB, and vice versa. The fall in the settlement ratio during the recent two months can certainly be attributed to the “one-off” devaluation of RMB. Anyhow, holding more foreign currencies on hand and reducing the proportion of RMB in monetary assets would be a sensible tactic to minimize current foreign exchange risk. By the China Database Team Discuss this post and many other topics in our LinkedIn Group (you must be a LinkedIn member to participate). Request a Free Trial Subscription. Back to Blog
28th October 2015 Civil Evolution of the RMB Internationalization

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