NATIXIS RMB Internationalization Monitor - Firm steps ahead but far from enough to buffer rising geopolitical tensions

The use of the RMB as international currency surpassed the Japanese yen (JPY) in 2021 and became the 4th largest currency, in terms of the number of private cross-border transactions, as reported by SWIFT. The share in global payments rose to 3.2%, but this is still a very small share relative to the size of the Chinese economy. It should be noted that this push happened in a year when the RMB appreciated 2.69% against the USD.

Trade continued to be the most important reason to use RMB for international payments, with a sharp rebound in 2021 in line with the very robust increase in Chinese exports since the pandemic started.

Notably, the rising share of RMB for international payments was accompanied by an increased number of cross-border payments processed through China’s international payment system (CIPS) since Q3 2020.

Regarding to the use of RMB as store of value, foreign investors continued to flock into the Chinese onshore bond and stock markets in 2021, but at a slower rate than in 2020, given that the People's Bank of China (PBoC) started to move towards a laxer stance towards the end of 2021 and the regulatory crackdown hurting the stock market.

RMB loans held by overseas institutions remained stable in 2021 while RMB deposits slightly increased, but with a very small size for both. The share of RMB in official reserves globally increased to 2.7% in Q3 2021 from 2.3% end of 2020, on the back of reduced shares of EUR and JPY denominated forex reserves.

The new issuance of offshore RMB market (dim sum bond) remained subdued in 2021 but picked up in pace in H2 led by government entities.

RMB deposits in Hong Kong grew rapidly, probably pushed by a stronger RMB and a still positive interest rate differential with USD deposits. The growth of RMB deposits was less obvious in other RMB offshore financial centers, although there is a slight increase in Singapore.

The rising geopolitical risks have added urgency to the development of E-CNY as a way to promote the RMB as an international currency, but the progress has remained slow.

Full report is available for Natixis clients.