The Executive Board of the International Monetary Fund (IMF) recently completed the five-yearly review of the valuation of the Special Drawing Rights (SDR), and unanimously decided to maintain the current SDR basket of currencies, which is still composed of the US dollar, the euro, the Chinese yuan, and the Japanese currency. It is composed of the yuan and the pound, and the weight of the yuan is raised from 10.92% to 12.28%. The new SDR currency basket will come into effect on August 1 this year. At present, the weight of the RMB in the SDR remains in third place.
The first is to stabilize expectations and confidence. The increase in the weight of the RMB SDR is a milestone in the internationalization of the RMB. It can play a role in stabilizing confidence for companies to participate in global trade and investment. When confidence is stabilized, there will be more stable expectations for investment returns. It can reduce the risk premium caused by abnormal exchange rate fluctuations. At the same time, this shows that international institutions have higher recognition of China's economic growth, and foreign companies have more stable expectations of doing business with Chinese companies.
Secondly, it is beneficial for enterprises to engage in more extensive and far-reaching trade and investment. The increased internationalization of the RMB means that the global recognition of the RMB has increased, and the settlement process of business activities can reduce the intermediate dependence on other currencies and reduce the fluctuation of the intermediate exchange rate. Uncertainty makes the forward pricing of commodities or currencies more reflective of the fundamental value of physical activity.
Finally, it can reduce a certain degree of political risk, such as reducing the risk of the "Society for International Banking and Financial Telecommunication" international payment network being unavailable due to sanctions by third countries.
Generally speaking, for a currency to be included in the SDR basket, it must meet both the "export criteria" and the "freely usable currency criteria". Overall, the increase in the weight of the RMB in the SDR basket is closely related to the progress of China's foreign trade and currency freedom. In recent years, China has implemented measures such as institutional opening up, the construction of free trade zones (ports), the construction of innovative demonstration zones for import trade, and the stabilization of foreign investment, to improve the degree of matching domestic laws and regulations with international high-standard economic and trade rules, and to reduce the administrative burden in the market. These measures will help to take advantage of China’s market advantages to attract foreign investment and stabilize foreign trade, enhance the linkage between the exchange rate and the real economy, and improve the marketization of the RMB exchange rate. Strengthen the "export standard" conditions of the SDR.
"Currently, RMB is still a free currency under the 'capital account'. On the basis of pilot projects, we will carry out cross-border RMB settlement business, encourage domestic and foreign investors to use RMB, and truly implement the measures of 'first-line liberalization and second-line control'. Help expand the use of overseas RMB.” Shi Xianjin also mentioned that it can encourage the development of emerging trade models, such as offshore trade, digital trade, cross-border e-commerce, etc., to expand the application scenarios of digital RMB in the process of RMB internationalization, and gradually Truly realize the free flow of cross-border capital and the convertibility of capital accounts.
In addition, with the further development of the digital economy, especially digital trade, China can promote the upgrading of SDR to a digital version, namely eSDR, in the future. Liang Haiming analyzed that digital eSDR has three major advantages:
First, the SDR's original feature of resisting exchange rate fluctuations has not changed. Since the SDR is more stable than the US dollar, countries adopting the SDR can avoid the exchange rate fluctuation risk, credit risk and depreciation risk that must be borne by using the US dollar as the main settlement currency, and can also avoid risks of the economic and financial systems of other countries being affected by the U.S. passing on the financial crisis.
The second is that eSDR can be decentralized, enabling payers and payees to conduct direct transactions on a peer-to-peer financial network, eliminating the involvement and obstruction of third parties such as the United States.
Third, eSDR can greatly expand the scope of use. The digital economy has made various new technologies increasingly mature, so new technologies can be used to issue SDR-denominated bonds to promote the use of SDR for transactions, trade and investment in the international financial market. More importantly, as the threshold is lowered, individuals can also Opening eSDR accounts for use in digital trade, cross-border payments and investments will expand SDR usage.
"China can consider how to establish an eSDR trading platform and introduce a regulatory system as soon as possible in international financial centers, such as Hong Kong, which is an offshore RMB market, and Hainan Free Trade Port, the world's largest free trade port." Liang Haiming suggested that through the eSDR It will be first tested in some areas, and then gradually extended to surrounding cities, and then expanded to countries and regions along the "Belt and Road", and finally promote the participation of countries in the use. In his view, in the future, eSDR will not only promote the development of world trade, but also provide more choices for the international reserve assets of countries around the world.
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