Depth report

　　

On September 30, 2022, the People's Bank of China announced that it decided to authorize the ICBC Vientiane Branch to act as the RMB clearing bank in Laos. It is the fifth renminbi clearing bank in an Asean country, after Singapore, Malaysia, Thailand and the Philippines. The steady expansion of RMB clearing banks in ASEAN countries reflects the deepening use and acceptance of RMB in ASEAN countries.

The Report on the Use of RMB in ASEAN Countries 2022, released recently at the 14th China-Asean Leaders Forum for Financial Cooperation and Development, said that the use of RMB in ASEAN has bucked the trend by deepening economic and trade cooperation under the Regional Comprehensive Economic Partnership (RCEP). In 2021, the volume of cross-border RMB settlement between China and ASEAN reached 4.8 trillion yuan, a year-on-year increase of 16% and a nearly 20-fold increase in the past 10 years.

Asean countries' recognition of RMB continues to increase

According to the Report on the Use of RMB in ASEAN Countries 2022, 10 years ago, the amount of RMB collected and paid across the border between China and ASEAN countries in 2012 was less than 500 billion yuan. Ten years later, the share of RMB used by ASEAN countries increased, while the share of other currencies naturally decreased. There is no doubt that there are deep reasons for this change, and it indicates the future development trend.

China and ASEAN are each other's largest trading partner. Bilateral trade and investment are increasingly integrated. China and ASEAN have gradually established a multi-tiered and wide-ranging financial cooperation framework. According to the report, monetary authorities in China and ASEAN countries are closely linked and multi-currency cooperation is constantly upgraded. By the end of 2021, China had signed bilateral local currency settlement agreements with Vietnam, Indonesia and Cambodia. It has signed currency swap agreements with Indonesia, Malaysia, Singapore and Thailand worth about 800 billion yuan. Moreover, financial institutions in ASEAN countries have deeply invested in the RMB market, and the payment and clearing network has been continuously improved. Singapore, Malaysia, Thailand and the Philippines already have renminbi clearing bank arrangements. In 2021, 16 additional ASEAN financial institutions became indirect participants in the RMB Cross-border Payment System (CIPS), which handled 3.3 trillion yuan of cross-border RMB business between China and ASEAN in the year, over 50% year-on-year.

In addition, the RMB business model has been continuously innovated, and the demand of market players has been effectively met. Regional transactions of RMB in the interbank market of ASEAN countries have been actively expanded, RMB products in the offshore market have been enriched and upgraded, and a number of cross-border RMB businesses have been successfully launched through innovation. Guangxi, Yunnan and Chongqing have strengthened financial exchanges and cooperation with ASEAN in light of local conditions, made it more convenient for market players to use RMB, and optimized cross-border settlement services for border exchanges.

Currently, ASEAN countries do not have a common currency. In this regard, experts said the RCEP is conducive to regional economic integration, and in the long run will be conducive to the formation of common interests. In addition, the international monetary system is likely to undergo adjustment, manifested by the slow rise of the new international currencies and the slow decline of the incumbent dominant currencies. In this context, there is much to be done for RMB in ASEAN in the future.

The actual demand of companies will determine how the yuan is used and traded

By June 2022, China had signed bilateral currency swap agreements with 40 countries and regions, totaling more than 4 trillion yuan. Among them, the People's Bank of China officially launched the local currency settlement mechanism with the Bank of Indonesia on September 6, 2021. According to the Memorandum of Understanding on the Establishment of a Cooperative Framework to Promote Local Currency Settlement of Current Account and Direct Investment, the two sides are allowed to settle bilateral trade and direct investment in local currency. The People's Bank of China signed bilateral local currency cooperation agreements with the Central Bank of Cambodia on March 1, 2021 and the Central Bank of Laos on January 6, 2020. The bilateral local currency cooperation agreements allow for the direct use of both countries' local currencies for settlement of all current account and capital account transactions that the two countries have liberalized. In addition, some ASEAN countries have carried out bilateral local currency settlement with RMB in specific areas within their territory. The Central Bank of Myanmar on December 14, 2021 and the Central Bank of Vietnam on October 12, 2018 allowed settlement in local currency between the two sides in designated areas of the border.

Liu Xiaochun, former president of Zheshang Bank, told Southern Weekly that China is now the world's second largest economy and has a growing influence on the Asian economy. In the future, the interaction between RMB, yen, Singapore dollar and other Asian currencies will increase, which is a natural result of the greater regionalization of the industrial chain.

"We have observed that some RCEP countries no longer rely on the US dollar for trade. Companies in these countries import raw materials or parts from China and then export them to China or other RCEP countries after processing in their own countries. At this time, using the US dollar is equivalent to two foreign exchange exchanges, which is unnecessary. Enterprises can fully use RMB for payment in the upstream and downstream of the industrial chain, which reduces the exchange link and reduces their own foreign exchange risk." "Liu Xiaochun said. He believes that in the past, the industrial chains of Asian countries were highly similar and the industrial competition was fierce (such as the four Asian Tigers), but now they are highly complementary and highly dependent on China's industrial chain and complete industrial system. Therefore, it is entirely possible for Asian countries to form a self-cycle within the regional economy and thus produce a regional dominant currency.