Is RMB A (Truly) International Currency? · RMB Internationalization: A Change of Trend Total...

Is RMB A (Truly) International

Currency?

——An Evaluation Based on Offshore FX Trading Patterns

Beijing · RMB and FX Forum

2017-09-13

RMB Internationalization: A Change of Trend

The share of RMB in global payments (%)

0

0.5

1

1.5

2

2.5

3

20

11

.10

20

11

.12

20

12

.02

20

12

.04

20

12

.06

20

12

.08

20

12

.10

20

12

.12

20

13

.02

20

13

.04

20

13

.06

20

13

.08

20

13

.10

20

13

.12

20

14

.02

20

14

.04

20

14

.06

20

14

.08

20

14

.10

20

14

.12

20

15

.02

20

15

.04

20

15

.06

20

15

.08

20

15

.10

20

15

.12

20

16

.02

20

16

.04

20

16

.06

20

16

.08

20

16

.10

20

16

.12

20

17

.02

20

17

.04

20

17

.06

Data source: SWIFT


Total Outstanding of RMB Deposits in Hong Kong (RMB mn)

Data source: CEIC

0.000

200,000.000

400,000.000

600,000.000

800,000.000

1,000,000.000

1,200,000.000


So, is RMB internationalization a successful story?

How to Measure the Level of RMB Internationalization?

Private Use Official Use

Medium of Exchange

vehicle currency: invoicing trade

and financial transactions, settlement

currency

vehicle currency: intervention currency in the

foreign exchange market

Unit of Accountquote currency (denominating trade

and financial transactions)anchor of the other currency’s exchange rate

Store of Valueinvestment currency (portfolio

allocation) or currency substitution

(private dollarization)

reserve currency (international reserves)

Basic Functions of International Currencies

Data source: Hartmann (1998)


Indicator System of RMB Internationalization Index by IMI, Renmin University of China

Data source: International Monetary Institute: RMB Internationalization Report 2015

First-class indicators Second-class indicators Third-class indicators

International Pricing and Payment Function

Trade Proportion of RMB settlement in

world trade

Capital and Finance

Proportion of RMB credit in global foreign credit

Proportion of RMB security in global issuance of international bonds and bills

Proportion of RMB security in global remaining sum of international bonds and bills

Proportion of RMB direct investment in global foreign direct investment

International Reserve Function Official Foreign Exchange Reserves

Proportion of RMB foreign exchange reserves in global foreign exchange reserves


Formula of Renminbi Globalisation Index (RGI) by Standard Chartered

Data source: Standard Chartered

1 1 1 1 1D T F DC

RGI t Depo t TSIP t FX t DSCD tW W W W

RGI t Depo t TSIP t FX t DSCD t

A New Approach: Trading Pattern in Offshore FX Market

• Assumption:

– Currencies at the similar level of internationalization have similar trading patterns

– Trading pattern is more stable and relevant than trading volume

• A (politically incorrect) analogy: How to judge a person’s social class?

– Income or wealth

– Social behavior


• What’s the meaning of trading pattern?

– Statistical characteristics of trading data on specific currency or currency-pair

– Topological characteristics of the complex network comprising of the institutions

participating the trading of specific currencies and the transactions between them

𝑄1 𝑄2 𝑄3 … 𝑄𝑖 … 𝑄𝑁𝑄1 𝑤11 𝑤12 𝑤13 … 𝑤1𝑖 … 𝑤1𝑁𝑄2 𝑤21 𝑤22 𝑤23 … 𝑤2𝑖 … 𝑤2𝑁𝑄3 𝑤31 𝑤32 𝑤33 … 𝑤3𝑖 … 𝑤3𝑁… … … … … … … …𝑄𝑖 𝑤𝑖1 𝑤𝑖2 𝑤𝑖3 … 𝑤𝑖𝑖 … 𝑤𝑖𝑁

… … … … … … … …𝑄𝑁 𝑤𝑁1 𝑤𝑁2 𝑤𝑁3 … 𝑤𝑁𝑖 … 𝑤𝑁𝑁


• Variables

Regular statistical characteristics

– Proportion of different trading institutions categories;

– Proportion of different regions where trading took place;

– Proportion of transnational transactions;

– Proportion of cross-regional transactions;

– Market concentration.

Network characteristics

– Distribution function of trading institutions with various number of trading partners;

– Trading intensity between highly active trading institutions;

– Trading intensity between high volume trading institutions;

– Local intensity of trading relationship;

– Local intensity of trading volume;

– Proportion of reading between high volume trading institutions.


• Clustering of CLS currency-pairs in Q2 2015


How different is KRW trading?


• Ranking of CLS currencies in Q2 2015

Data source: SWIFT RMB Tracker

Rank Currency Name Currency Code

1 United States Dollar USD

2 Euro EUR

3 British Pound GBP

4 Japanese Yen JPY

5 Canadian Dollar CAD

6 Swiss Franc CHF

7 Australia Dollar AUD

8 New Zealand Dollar NZD

9 Swedish Krona SEK

10 Norwegian Krone NOK

11 Singapore Dollar SGD

12 Hong Kong Dollar HKD

13 Danish Krone DKK

14 South African Rand ZAR

15 Mexican Peso MXN

16 Israeli New Shekel ILS

17 South Korean Won KRW


• Clustering of RMB and CLS currency-pairs in Q2 2015


• Clustering of RMB and CLS currencies in Q2 2015


• Ranking of RMB and CLS currencies in Q2 2015

Data source: SWIFT RMB Tracker

Rank Currency Name Currency Code

1 United States Dollar USD

2 Euro EUR

3 British Pound GBP

4 Chinese Offshore RMB CNH

5 Canadian Dollar CAD

6 Swedish Krona SEK

7 Swiss Franc CHF

8 Norwegian Krone NOK

9 Danish Krone DKK

10 Australia Dollar AUD

11 Mexican Peso MXN

12 Japanese Yen JPY

13 Hong Kong Dollar HKD

14 New Zealand Dollar NZD

15 South African Rand ZAR

16 Singapore Dollar SGD

17 South Korean Won KRW

18 Israeli New Shekel ILS

19 Hungarian Forint HUF


• Conclusion

RMB looks very like a member of international currency club,

even though he sometimes behaves a bit weird…


How weird is CNH trading?


Why is CNH trading so weird?

– RMB is not a CLS currency

– Sparseness of RMB trading data


Why does RMB still rank high as an international currency?

➢ High diversification in trading patterns

Currency

code

Average distance between

currency-pairs

Number of currency pairs

USD 12.96 7

AUD 7.0519 7

CAD 7.995 6

CHF 8.8394 5

EUR 15.64 10

GBP 8.6277 7

JPY 6.5875 6

SEK 8.2447 4

CNH 12.7939 9

Conclusion and Policy Recommendation

• The fact that RMB doesn’t join an international multilateral PvP

settlement mechanism like CLS not only limits its trading

efficiency, but also twists its trading pattern to some extent.

• The benefits of international cooperation on payment system

are not only from the improvement of RMB trading

efficiency in FX markets, but also from the opportunity to

employ accurate and systematic trading data to more precise

assessment of RMB’s position in global monetary system.

THANK YOU FOR YOUR ATTENTION!

Is RMB A (Truly) International Currency? · RMB Internationalization: A Change of Trend Total...

Documents

Transcript of Is RMB A (Truly) International Currency? · RMB Internationalization: A Change of Trend Total...