Natixis Says Internationalization of RMB Regressing

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Research from French investment bank Natixis claims that the internationalisation of the Chinese currency is moving backwards as a result of depreciatory pressure that commenced in mid-2015.

According to Natixis Research Analyst Alicia Garcia Herrero the internationalisation of the RMB has suffered from major setback since 2015, following a surge in overseas use during the first half of the decade.

“All in all, the progress of RMB internationalisation is clearly retreating, especially its functions as medium of exchange and store of value, which were the most important,” wrote Herrero.

According to Herrero RMB saw a surge in its use as a medium exchange during the period from 2012 until last year, especially within the private sector.

While at the start of the decade RMB settlements via swift accounted for a mere 0.05% of the the total, they surged to 2.79% by August 2015.

The Chinese yuan also saw its significance as a store of value increase until the summer of 2015, although assets held by foreigners as a share of China’s total market value still remained low.

Ongoing depreciatory pressure since 2015 has since reversed the surging international popularity of the Chinese currency during the first half of the decade.

RMB settlements fell around 20% last year from 9.7 trillion yuan to 7.7 trillion yuan, while the amount of RMB assets held by overseas investors plunged by 20% in 2016 compared to the previous year.

The receding popularity of the RMB has seen the importance of offshore centres diminish, with Chinese yuan deposits in Hong Kong falling from 12.8% of total deposits at their peak in March 2014 to just 4.7% in March 2017.

While the amount of RMB denominated outstanding loans in Hong Kong remain at almost their highest value in years, their share of the total has seen a decline.

Herrero nonetheless sees a glimmer of hope for the Chinese yuan in efforts to expand access to RMB-denominated debt for overseas investors.

“The developments apparent look bright for standard of deferred payment (bond issuance) as the Chinese government has proactively stepped up efforts to attract capital inflows into the rapidly growing bond market – with the latest China-Hong Kong Bond Connect as the best illustration.”

In 2016 China’s central bank offloaded a significant chunk of its foreign reserves as part of efforts to maintain the flagging value of the RMB, while at the start of June the yuan lifted to a six month high against the dollar.

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