Depth report

　　

Recently, the onshore and offshore exchange rates of the RMB against the US dollar have both hit a new high since the 811 exchange rate reform. In fact, since 2017, as the degree of pegging to the US dollar has further weakened, the effective exchange rate of the RMB has tended to be balanced. The endogenous stability of the renminbi has gradually become prominent, laying the foundation for its development into a potential "anchor currency".

    As the endogenous stability of the RMB exchange rate increases, the internationalization of the RMB is expected to accelerate again. At present, the influence of the renminbi on the exchange rate of other BRICS economies, Latin American economies, the Middle East, Australia and other countries' currencies has already appeared. Focusing on breaking the situation outside the territory will help the leapfrog development of the use of renminbi abroad in the new era, and the petro renminbi is the key starting point. With the growth and decline of international responsibilities brought about by changes in relative strength, the prospects for the internationalization of the renminbi after the break are promising.

    The exchange rate is the anchor, and the renminbi highlights the endogenous stability. In 2017, the U.S. dollar index fell by about 10%. In 2018, the U.S. dollar index continued to decline by about 3.5%, causing the euro, the yen, and the pound to appreciate against the dollar by 3.9%, 6.3% and 5.4%, respectively. In contrast, the RMB exchange rate against the US dollar has appreciated by about 4% year-to-date, and the degree of pegging to the US dollar has further weakened, and the impact of the US dollar index has increased significantly, highlighting endogenous stability. On the one hand, the enhancement of endogenous stability is manifested as the effective exchange rate tends to equilibrium. The operation of the RMB exchange rate has a "two-sided nature". To accurately grasp its overall trends and causal context requires comprehensive consideration of changes in the bilateral exchange rate against the U.S. dollar and the effective exchange rate against a basket of currencies. Although the exchange rate of the renminbi against the dollar has risen rapidly recently, the inherent stability of the effective exchange rate of the renminbi against a basket of currencies has not wavered, but has strengthened against the trend.

    The stability of the effective exchange rate of the RMB against a basket of currencies is rooted in three endogenous factors: the gradual improvement of the exchange rate formation mechanism, the fundamental reversal of exchange rate expectations, and the sound economic fundamentals. According to our calculations, the effective exchange rate of the RMB against a basket of currencies in 2017 deviated from the equilibrium exchange rate by only 1.29%, and the absolute value of the deviation was much lower than the historical average of 3.89% from 2006 to 2017. Since the beginning of this year, the degree of deviation has further decreased, and the effective exchange rate of the RMB against a basket of currencies has been close to the equilibrium exchange rate, the potential for oscillation has narrowed, and the stability has been greatly improved.

    On the other hand, the enhanced endogenous stability has laid the foundation for the development of the RMB into a potential “anchor currency”. Since the beginning of the year, the appreciation of the renminbi has been significantly lower than that of the yen and the pound, showing a sense of responsibility as a potential "anchor currency." The core of the international currency anchor lies in its scarcity and stability, which is contrary to the inflationary tendency of seigniorage. Historically, currency internationalization means establishing its own "anchor" through credit accumulation, and network externalities are the key to maintaining the long-term status of international currency anchors. In order to partially replace existing international currencies, the renminbi must first get rid of its shadow currency status. Although the recent escalation of the Sino-US trade war has brought significant volatility in the financial market, from China's attitude, actively adjusting the value of the renminbi is not a response. Therefore, whether from the perspective of day adjustment or overnight pegging, the RMB exchange rate has actually decoupled from the US dollar. Further optimize the exchange rate formation mechanism, and gradually build an international currency anchor endorsed by its own strength, which not only meets the objective needs of global stability, but also conforms to national interests.

    Reshaping the system, the three-legged pattern is expected to be further established. Putting aside the controversy about one yuan or pluralism, it is an indisputable fact that the dynamic evolution of the global economy is reshaping the currency domain. Regarding the structural characteristics of the international monetary system, in addition to the proportion of major international currencies in pricing, settlement and reserves, the linkage of exchange rates is also one of the academic circles’ basis for the division of currency zones, which is mainly derived from the importance of (potential) reserve currencies. Attribute-as an exchange rate anchor for other currencies.

    By examining the degree to which the five currencies in the Special Drawing Rights (SDR) basket determine the exchange rate changes of the rest of the world’s currencies, the IMF’s working paper pointed out that no matter whether the exchange rate determines the absolute amount of the currency with the greatest degree of determination, or the relative economy in the affected region The U.S. dollar, renminbi, and euro are currently the most important international currencies. From the perspective of the global GDP share calculated by purchasing power parity between 2011 and 2015, the US dollar group accounted for about 40%, the RMB group and the Euro group accounted for about 30% and 20%, respectively, and the influence of the yen and the British pound outside the issuing zone Weaker. From the perspective of indicators that can better reflect international influence, for the economies other than the five major international currency issuers, the US dollar group accounts for half of the country, while the RMB group and the euro group account for 34% and 15% of the economies respectively.

    Although the impact of the constraints imposed by the measurement method may be overestimated on the role of the RMB as an "anchor", it can still be regarded as the potential upper bound of the RMB anchor, which is generally in line with the current global economic structure. Comparing this result with the relative weight of the current global official foreign exchange reserve assets and the relative weight of the SDR currency basket, we can find that the US dollar’s recognition as an official anchor and the right to speak are still outstanding, and the future expansion of the renminbi region still needs to be the renminbi reserve currency Further promotion of status.

    If the situation is broken outside the territory, the oil renminbi may be the key starting point. IMF research shows that since 2014, the volume of the RMB area has declined, which is consistent with our series of judgments. After the 811 exchange rate reform, due to the impact of devaluation, the RMB exchange rate experienced multiple rounds of oscillations, and the management of exchange rate expectations was strengthened accordingly, which indeed led to a phased slowdown in the process of RMB internationalization. Since the beginning of 2017, as the RMB exchange rate has stabilized, this shackle has been quickly dispelled, and the internationalization of the RMB is expected to accelerate again.

    From the perspective of regional influence, the expansion of the RMB group economy is currently limited by geographical factors, especially in Asia, where the RMB is still not the dominant currency. However, it is worth noting that the exchange rate influence of the renminbi on the currencies of other BRICS economies, Latin American economies, the Middle East, and Australia has already appeared. After the re-acceleration of the internationalization of the renminbi, focusing on breaking the situation from outside the territory will help the leapfrog development of the renminbi's overseas use, and the petro renminbi may be a key starting point. At present, due to the mismatch of liquidity and the right to speak, petrodollars are inherently contradictory to the global recovery process. The end of the single petrodollar system is inevitable in the future, and the construction of the petro-renminbi system has become the general trend.

    On March 26, 2018, China's crude oil futures were listed for trading at the Shanghai International Energy Exchange, marking the first step in the pricing and settlement of petroleum in RMB. The establishment of the petroleum renminbi system will create a diversified petroleum pricing and settlement system to support the long-term recovery of the global economy. Driven by the endogenous demand for economic development along the “Belt and Road” and supported by the currency credit of the renminbi, the petroleum renminbi system is expected to interact within and outside the region and gradually form a virtuous circle that benefits China, economies along the route, and oil exporting countries. Therefore, in the context of diversified upsurge, global recovery "shifting and speeding up", and increasing demand for oil de-dollarization, petro-renminbi will leverage new opportunities for the internationalization of the renminbi.