International use of RMB stagnating, says annual report card

HONG KONG – An annual report card by the French banking group Natixis shows that the internationalisation of the RMB has stagnated. The bank’s RMB Internationalisation Monitor tracks the uses of Renminbi in both private and official domains.

The report shows that international use of the RMB as medium of exchange dropped “quite substantially” in 2016 and, since then, has stagnated.

“Among all the different private uses, trade settlement (the relevant one) declined in 2016 and stagnated since,” the report says.

“However, the RMB’s use for inward and outward foreign direct investment (FDI and ODI) has picked up somewhat since the mid-2017.

“As for the “store of value” attribute, private use has rebounded but not the public one: Onshore RMB assets held by overseas investors increased somewhat in 2017 but official reserves in RMB are still limited.

“The private investment has mainly happened in equity and bonds. Still,  RMB loans and deposits held by overseas institutions as shares of total onshore loans and deposits have fallen well below the levels before 2016.

“Official reserves in form of RMB have not witnessed much growth since they were reported separately by the IMF at the end of 2016. In fact, they remain around 1% of total reserves.”

Natixis says international use of the RMB as unit of account could receive a new push with the recent introduction of RMB-denominated crude oil futures.

“While the new oil futures market still operates onshore, it points to the Chinese authorities’ long-term intention to foster the RMB’s international use as unit of account,” the report says.

“In terms of the standard of deferred payment, corporate bonds denominated in RMB have been rising, but less so on the sovereign side.”

Hong Kong remains the largest RMB offshore clearing centre.

“The RMB’s use in trade settlements, deposits and loans fell substantially in 2015-2016 and has stabilised since in Hong Kong. Shares of RMB services in other offshore centres remain stable in 2017-2018 but are very limited.”

www.natixis.com (ATI).