The long-term path of RMB internationalization is: first, it will gradually become a widely accepted international trade settlement currency in the medium term (5- 10); Second, it will become an increasingly important international investment currency after the gradual liberalization of capital controls in the medium and long term (10 years later); Third, it will gradually become a reserve currency in the long term (after 20 years). The internationalization of RMB we are discussing today is basically around the medium-term goal of RMB becoming an international trade settlement currency. To achieve this goal, the offshore RMB market must go through three main stages: first, the formation stage; Second, the development stage; Third, the mature stage. [See attached figure]
In order to make the characteristics of these three stages clearer, please allow me to make an analogy. If RMB flow is regarded as "water" and RMB products as "fish", the following logic is very clear: "fish" can not be separated from "water", and "fish" can not grow up without enough "nutrients" in "water". "Nutrients" here refers to the income that a product has to pay to investors, such as interest on bonds or dividends or income on stocks. In the near future, the nutrients in "water" can only come from home, because there is no RMB investment market abroad at present. Therefore, "water" can not only flow abroad, but also have a mechanism to return to China, in order to obtain the income generated at home and raise "fish in the water" abroad. If this metaphor is used to describe the development path of RMB internationalization, it may be easier for everyone to understand the problems and challenges at different stages.
Today, China has basically liberalized the control of RMB under trade, that is to say, as long as it is used for trade settlement, RMB can flow out to pay for imports and into pay for exports on a large scale. At present, the central banks of eight countries and regions have signed currency swap agreements with the People's Bank of China. However, because there are not enough "fish" abroad, trading partners exporting to China have no incentive to obtain a large amount of RMB. Without a large amount of RMB flowing out of trade, there will be no large amount of RMB flowing in from abroad. In this way, the two completely open outflow and inflow canals under trade are in a dry or fine state. How to make these two main channels flow is the medium-term goal before RMB internationalization is opened under capital.
1. Formation stage of offshore RMB market
In February 2004, Hong Kong banks began to try out personal RMB business, including deposit, remittance, exchange and credit card business. No more than RMB 20,000 per person per day. By the end of July this year, the RMB stock in Hong Kong had reached103.7 billion yuan. At present, "water" is basically stagnant water, and there are many restrictions on overseas flow. The "fish" in the "water" is also very small, basically a sediment product, and the nutrients in the "water" are also very limited. The income basically depends on the expectation of appreciation plus meager interest.
The clearing agreement signed in July this year under the leadership of the People's Bank of China and the Hong Kong Monetary Authority is a major breakthrough in the RMB market outside Hong Kong. "Water" has lived abroad before and has the conditions to accept bigger and more "fish". At the same time, policy makers are fully aware that at this stage, the nutrients in the pool of overseas RMB market can only come from China, so they quickly started the RMB return mechanism to connect overseas water with domestic income, and then overseas can develop larger and more products. Allowing overseas financial institutions to invest in overseas RMB stocks in the domestic inter-bank bond market, the long-awaited QFII will rapidly promote the development of insurance products and fund products with higher income than deposit products. Banks with higher income sources can also attract more RMB savings products at larger scale and more favorable prices, thus improving the enthusiasm of RMB exchange and trading partners to use RMB.
Generally speaking, there are more than RMB 1000 billion in the Hong Kong market, mainly held by individuals. The initial driving force is the expectation of RMB appreciation, and the investment products are a few fixed-rate products such as deposits, government bonds, insurance and funds. With the gradual opening of the channel for Hong Kong RMB to return to the mainland, income has become the main driving force for holding RMB. So far, it can be said that the offshore RMB market in Hong Kong has begun to take shape.
Despite the rapid development of this market, due to its small base, even if it quadruples in a few years, compared with China's total import and export volume of $2.2 trillion in 2009, its role in stimulating the flow of import and export canals under trade is still limited. Therefore, under the premise of risk control, the challenge in the next stage is how to increase the outflow and inflow of RMB more actively and drive the water flow of the two main canals under trade more quickly.
2. The growth stage of offshore RMB market
Different from the previous stage, the main function and goal of the growth stage of offshore RMB market is to develop enough products with sufficient scale, higher income and more active transactions, so as to activate, start and increase the water flow of the two main channels under trade, attract a wider range of trade settlement partners to start using RMB, and make the offshore RMB market enter a mature stage as soon as possible.
The purpose of developing larger-scale RMB products is to attract more institutional investors to participate in RMB investment, and then attract large trading partners to use RMB on a larger scale. The purpose of developing more dynamic RMB products is to increase the liquidity leverage of RMB abroad. The stock of RMB in overseas markets is limited, and offshore RMB products must have an active secondary trading market in order to increase the liquidity of RMB. If one yuan of stock can bring seven or eight yuan of trading volume, which is equivalent to an outflow of seven or eight yuan, its leverage effect is obvious. Whether RMB products can have higher trading volume depends largely on the level of product income, and the higher the income, the more likely it is for products to promote higher secondary market transactions.
In order to develop products with sufficient scale, quantity and active trading, two important topics need to be studied: first, there must be enough initial RMB liquidity to ensure the success of issuance and trading; Second, there should be smoother channels for RMB to return to China, creating revenue sources for products and encouraging product distribution.
(1) Initial liquidity guarantee
The initial issuance of RMB bonds, stocks, futures and other products launched at this stage must be accompanied by sufficient RMB liquidity in the secondary market transactions. Otherwise, product issuers will no longer worry about not having enough RMB shares to buy or trade. Therefore, when such products go on the market, while making full use of the outbound RMB stock, we can consider temporarily injecting RMB into the offshore market to make up for the possible temporary shortage of RMB stock.
Before the market is activated, the amount of RMB settlement from trade will not be large, and it is difficult to become the main source of funds. Then, where will the RMB in the offshore market come from except for the stock of RMB leaving the country? The following are several possibilities:
1) allows overseas enterprises to obtain RMB through currency swap agreements between China and other countries and regions and invest in products in Hong Kong;
2) allow mainland commercial banks to carry out offshore RMB loan business that meets trade needs;
3) Allow approved mainland enterprises to invest abroad in RMB;
4) Allow mainland insurance companies or fund companies to apply for transferring RMB to Hong Kong in an individual way, and use it exclusively for purchasing an investment product (such as RMB-denominated stocks); and
5) Allow QDII to participate in overseas issuance and trading of RMB.
In addition to the above-mentioned structural export of RMB to the offshore market, we can also consider setting up a temporary, experimental and quota-controlled RMB "liquidity support pool" (or "fund pool") to provide support for a certain RMB product or a series of RMB products to ensure that its issuance and trading will not be affected by the insufficient offshore RMB stock.
In practice, foreign investors who do not have RMB can exchange foreign currency into RMB in the "fund pool" to participate in the investment and trading of these products, while investors who already have RMB can directly enter the issuance and trading links. Such a "fund pool" can be established with the participation of offshore RMB participating banks, who can obtain RMB through the domestic interbank lending market or other means. There is an upper limit on the "fund pool" to prevent it from becoming a channel for the disorderly outflow of RMB in China. At the same time, in order to ensure that this "pool of funds" will not dry up, investors who participate in the "pool of funds" in foreign currencies can only withdraw from the "pool of funds" after selling their products, so as to restore the original level of RMB in the pool.
The liquidity guarantee mentioned above is only a temporary and short-term measure in the early stage of market development, aiming at eliminating the concerns of issuers at the beginning. Once liquidity begins to accumulate naturally, these initial artificial water injection measures will be replaced by market forces.
(II) Backflow The second problem of ensuring the large-scale development of offshore RMB business refers to the need for sufficient backflow. In other words, the policy should allow "big fish products" (corporate bonds, stocks, futures and interest rate derivatives, etc. ) Successfully return the issued RMB funds to China through foreign direct investment or other means. This is because these products need to get income from domestic business, and today, the income that RMB can bring can only come from China. Without this, it is impossible to develop more active products with big transactions.
It should be pointed out that this kind of return is limited (limited to the amount of issuance financing) and RMB, and will not further increase the scale of foreign exchange holdings and exchange rate pressure. If we allow domestic companies to issue RMB shares when they are listed overseas, the funds remitted from overseas will no longer be foreign currency. Accordingly, the management of RMB foreign direct investment (overseas RMB domestic direct investment) should be different from foreign exchange foreign direct investment.
Although the above outflows and backflow need to be considered under capital, it must be emphasized that their purpose is not to seek openness under capital, but as a means to activate and promote the circulation of RMB, the two main channels of import and export under trade. These policy arrangements must be based on the premise of preventing the impact on the mainland market under the condition that capital projects are not open. Measures and methods can be gradually introduced in the form of pilot projects, and measures such as total amount restriction can be taken for outflow and backflow to ensure the predictability and controllability of the flow.
In short, the richness and activity of RMB investment products will prompt more and more trading institutions to choose RMB settlement and invest RMB in related products. Driven by capital, the offshore RMB market in Hong Kong will cross the critical point of development and enter a rapid development track.
3. The mature stage of offshore RMB market
Once the offshore RMB market has sufficient scale and liquidity and the products are gradually diversified, a large number of import and export enterprises may start to choose RMB for settlement. At this time, the offshore RMB market in Hong Kong has entered a mature stage. As mentioned above, there will be a large amount of RMB in and out of the two main channels under RMB trade. The water quantity and water pressure are different from before, because they are different from the artificial water discharge, water injection and reflux design in the first two stages. At this time, water is a natural inflow and outflow under trade. At the same time, a large amount of RMB will naturally exist in overseas circulation for a long time, which will further promote the virtuous circle of overseas RMB and product growth.
At this time, the scale of the market will far exceed the previous two stages, and the driving force will mainly come from the trade settlement of RMB. These funds may come from the RMB settlement of trade in neighboring countries and regions, as well as the RMB swap agreements between the central banks of these countries and regions and the People's Bank of China. The function of RMB trading market began to change from the activator and promoter of RMB trade settlement to the service provider.
To sum up, 20 10 is the formation stage of offshore RMB market. The main characteristics of this stage are: RMB flows out of the country for a long time and is included in a small amount by individuals; Products are mainly savings and fixed interest, which are basically market-driven; The motivation of income is mainly the expectation of RMB appreciation, and it begins to change to fixed income. At the same time, the market construction is in full swing, starting from the free circulation abroad, and starting the initial preparation of RMB entering the whole market.
Starting from 20 1 1, I hope that policy makers can gradually reach a * * understanding on the development path and start to push the offshore RMB market into the fast lane of growth. The most prominent performances of the fast lane are: first, the scale and diversification of RMB overseas products and the rise of the yield curve; Second, the initiative and enthusiasm of the policy measures for RMB outflow and return have been greatly enhanced; Third, the secondary market transactions of RMB products have increased substantially.