Expanded use of RMB may stabilize global financial market

Continued efforts are being made to boost the renminbi's international profile as it plays an increasingly important role in the global market, experts said.

That will be especially conducive to the international financial system's stability and economic growth, as the United States Federal Reserve's successive interest rate hikes are exacerbating global volatility, they said.

The RMB accounted for 2.44 percent of global payments in September, up from 2.31 percent a month earlier, the global bank-to-bank messaging system Society for Worldwide Interbank Financial Telecommunication said on Thursday.

The Chinese currency thus retained the position it secured in August as the fifth most active currency for global payments measured by value.

China has undertaken solid steps to advance the RMB's steady internationalization. The People's Bank of China, the country's central bank, announced on Oct 10 that it has renewed a bilateral currency swap agreement with the European Central Bank, with the amount unchanged at 350 billion yuan ($48 billion), or 45 billion euros. The agreement is valid for three more years.

The RMB's liquidity in overseas markets will be elevated with the bilateral currency swap agreement, facilitating RMB trade and financing, and increasing its use in international payments, said Song Ke, an associate professor at Renmin University of China's School of Finance. The willingness to use it will increase in overseas markets, driving up its international stature, he said.

In late September, the PBOC signed memorandums of understanding with Laos' central bank and the National Bank of Kazakhstan to establish RMB clearing arrangements in the two countries to facilitate investment and cross-border trade using the currency.

Liu Ying, a researcher at Renmin University of China's Chongyang Institute for Financial Studies, said the US dollar's liquidity has tightened globally after the US Fed's three consecutive interest rate hikes of 75 basis points, which have been exerting negative impacts on other economies' financial stability.

The currency agreements that the PBOC has signed will facilitate trade and investment, enhance global financial market stability and inject vitality into global economic growth, she said.

The RMB internationalization report released by the PBOC on Sept 23 showed that overseas entities held 10.83 trillion yuan of RMB-denominated stocks, bonds, loans and deposits at the end of 2021, up 20.5 percent year-on-year.

Nicolas Aguzin, CEO of Hong Kong Exchanges and Clearing, or HKEX, said on Wednesday that the RMB-trading counters to be included in the Hong Kong Stock Connect, which was initiated by the China Securities Regulatory Commission in early September, are part of a major strategy of HKEX that has generated "significant potential".

China Securities' chief analyst for the nonbanking financial sector, Zhao Ran, said the RMB-trading counters will allow investors on the Chinese mainland to trade shares in Hong Kong with transactions settled in RMB through the Stock Connect mechanism among the Shanghai, Shenzhen and Hong Kong bourses.

This will lead to a greater volume of RMB funds in offshore markets and diversified demand for more RMB products, he said. That will consolidate Hong Kong's role as an offshore RMB center and promote the currency's internationalization, he added.