The process of RMB settlement in international trade is accelerated



At present, more and more central banks are turning their attention to the renminbi to diversify their foreign exchange reserves.


The International Monetary Fund (IMF) recently released official foreign exchange reserve currency composition (COFER) data, showing that in the first quarter of this year, the proportion of RMB in COFER rose to 2.88%, ranking fifth in the world, setting a record for the IMF since 2016. The highest level since the release of RMB reserve assets.


According to the latest research results of global sovereign asset management released by Invesco, most central banks believe that their RMB positions are low and plan to increase their positions in the next five years.


Twenty-nine percent of respondents believe that the renminbi will become a "true reserve currency" within the next five years.


According to UBS's annual survey of 30 major central banks around the world from April to June this year, the proportion of central bank reserve managers who have invested or are interested in investing in the yuan rose to 85 percent from 81 percent last year. Four-fifths of central bankers surveyed said moving towards a multipolar world would benefit the renminbi, while less than half said it would benefit the dollar.


RMB is favored


While the U.S. dollar remains the primary global reserve currency for central banks, the proportion of dollar reserves held by major central banks has been steadily declining over the years.


According to the International Monetary Fund (IMF), as of the end of the first quarter of 2022, the US dollar accounted for 58.88% of global foreign exchange reserves, far lower than 65% in the same period in 2016.


Central banks are aware that the share of the renminbi in global foreign exchange reserves will continue to increase, especially after Russia's foreign exchange reserves are frozen.


Belarus


The Central Bank of Belarus has included the renminbi in its currency basket since July 15.


The central bank of Bai said that the decision was made mainly in consideration of changes in the foreign exchange transaction volume and foreign trade structure of the country's foreign exchange stock exchanges in 2022. The renminbi will have a weight of 10 percent in its currency basket, the Russian ruble will be 50 percent, and the dollar and euro will be 30 percent and 10 percent, respectively.


  Brazil


The IMF said that as of the end of last year, the renminbi reserves in Central and South America had grown significantly. The renminbi reserves of four countries including Brazil, Chile, Mexico, and Peru were close to US$30 billion, an increase of nearly 10 times compared with five years ago.


According to data released by the Central Bank of Brazil recently, Brazil increased the share of RMB assets in its international currency reserves to 4.99% last year, an increase of more than 3 times compared with 1.21% at the end of 2020. At the same time, the proportion of U.S. dollars in the Brazilian central bank’s foreign exchange reserves fell to 80.34%, a decrease of 5.69 percentage points from the end of 2020 and the lowest value since 2014.


  Russia


The central bank of Russia reported that the share of renminbi-ruble transactions in Moscow Exchange’s foreign exchange transactions rose to 11 percent; it was 6 percent in April and less than 1 percent in February.


The first RMB settlement of Australian iron ore


Recently, the latest development of RMB in the international settlement of commodities has surprised the market.


iron ore


According to the Greek shipping website on July 13, Australian iron ore suppliers embraced the Chinese market with RMB settlement. The site quoted a statement from Australian iron ore company BHP Billiton saying that a Victoria ship loaded with iron ore from a mine in Western Australia had arrived at the port of Rizhao, and that Australian iron ore group BHP Billiton also celebrated its first batch of RMB spot iron ore trade arrived in China.


Commodities analysts on Wall Street believe the launch of a yuan-based iron ore deal marks an important step for the Australian company to move closer to the Chinese market. At the same time, this will continue to expand the settlement influence and share of the RMB in the iron ore market.


It is worth noting that the Wall Street Journal earlier reported that China, which buys two-thirds of the world's iron ore, is increasingly demanding iron ore. To cater to Chinese companies, companies worldwide exporting low-grade iron ore are now planning to build new mines to boost production of high-grade iron ore. At the same time, following the international trading of petroleum RMB futures and the launch of international iron ore RMB futures trading, global importers and exporters can use RMB to trade iron ore futures commodities, resulting in a continuous decline in the pricing power of Australian iron ore companies.


Since 2019, iron ore companies in Australia and Brazil have launched futures pricing and RMB-denominated iron ore transaction settlement methods, which is obviously the result of both the market and the currency. This also shows that the monopoly of iron ore prices by Australian companies may come to an end, and the pricing power of iron ore is constantly approaching the RMB.


coal


And things are far more than that. There are signs that the process of RMB settlement of other resource commodities is also accelerating. According to various media sources, Indian buyers recently purchased a batch of Russian coal and paid in RMB. The value of this batch of goods is about 172 million RMB. This further corroborates the US financial website Zerohedge mentioned that the phenomenon of global buyers using RMB to settle international coal has already appeared.


Reuters said in the report that this trend (referring to the use of yuan for settlement) will further promote the internationalization of the yuan and weaken the dominance of the dollar in global trade.


The central bank of India has previously announced that the rupee exchange rate will abandon the peg to the dollar and replace the dollar with the renminbi in order to improve the export competitiveness of the country's goods. The Indian central bank's statement on July 11 showed that a rupee settlement mechanism has been established, with immediate effect, aimed at promoting global trade. To put it simply, Indian merchants can directly change to India's local currency rupee for settlement in the process of trading with foreign importers and exporters in the future. According to the latest report of the US Treasury Department, India has reduced its holdings of US Treasuries by US$21.2 billion since July last year, and currently only holds US$199 billion in US Treasuries, with a cumulative sell-off ratio of up to 10%. This further shows that India has embarked on a process of all-round de-dollarization.


petrochemical


The Russian Satellite News Agency Moscow reported on July 22 that Russia's Sibur Petrochemical Company said in its Telegram channel that the company has launched a RMB payment option to provide Chinese customers with payment flexibility. The company's executive director, Sergei Comeychan, was quoted in the news as saying: "We have introduced the option for Chinese customers to settle in renminbi in China, which will allow us to provide local customers with flexible payment methods."


In 2021, the company exported 500,000 tons of petrochemicals, mainly various polymers and synthetic rubber, to China, and plans to further strengthen the partnership this year, according to SIBUR.


SIBUR is Russia's largest integrated petrochemical company engaged in the processing of oil and gas by-products for the production of consumer goods and automobiles, construction, energy, as well as the chemical and other industries.


It is worth noting that the latest IMF report shows that the US dollar's share of international reserves has dropped to 58%, which is equivalent to a 27% decline in the US dollar's global market reserve share since the US dollar accounted for 85% of global reserves in the 1970s.


Source: Zhejiang CCPIT, International Finance News, Quanzhou Evening News, Guangming.com