SWIFT recently announced the share of global currency payments in November, and the renminbi finally surpassed the yen to become the fourth most active currency in the international payment space in November with a payment share of 4.61%.
In front of the renminbi are the US dollar, which has a payment share of 47.08%, the euro and the British pound, which has a 7.15% share, and the yen, which has been driven out of the top four by the yuan, has only 3.41% of the global payment share in November, which is more than 1 percentage point lower than the yuan.
After years of hard work, the internationalization of the renminbi has achieved phased results, which is worth celebrating. However, rationally speaking, there is still a certain distance between the renminbi and the real international currency for two reasons.
First, the gap between the share of payments and the dollar and the euro remains significant.
In November, the renminbi was active in the field of international payments, with a payment share of 4.61%, but it was still less than one-tenth of the US dollar and only one-fifth of the euro.
Second, it remains to be seen whether the share of payments will exceed that of the yen for a long time.
The share of payments is calculated on a monthly basis, and it is unclear whether the renminbi surpassed the yen in November, whether it will be a flash in the pan or a consolidation of fourth and third. The single-month data has a lot of chance, and it is only by maintaining the suppression of the yen for at least half a year that the RMB has become the fourth largest currency in the field of international payments.
I remember that in previous years, the euro overtook the dollar in first place in a few months, but it did not last long, and now the share of euros in payments has fallen below half of the dollar. Therefore, it is necessary to observe the data on the share of global payments of the renminbi in the coming months.
Third, the indicators to measure the degree of currency internationalization include payments, reserves, investment and financing, which need to be considered comprehensively.
Take the more familiar payment and reserve as an example, payment is flow, reserve is stock, the latter may be more important, take an example in life to illustrate.
Assuming that Zhang San's income in November is 10,000 yuan and Li Si's income is 5,000 yuan, it cannot be considered that Zhang San is richer than Li Si, and the key depends on the deposit balance of the two. If Zhang San's deposit is 100,000 yuan and Li Si's is 1 million yuan, it is obvious that Li Si is richer, and Zhang San has the potential to surpass Li Si, but he needs not only to earn more money than the other party every month, but also to go through a very long time (5,000 more in 1 month, 900,000 more in 15 years).
What is the status of the renminbi as a foreign exchange reserve? This can be roughly understood by looking at the data released by the International Monetary Fund (IMF) every quarter.
On December 22, the IMF updated its official reserve currency. As of the end of the third quarter of 2023, the accumulated foreign exchange reserves of the world's countries were converted into 11.9 trillion US dollars, of which 10.98 trillion US dollars could be identified and 0.92 trillion US dollars could not be identified.
Of the $10.98 trillion in foreign exchange reserves for the type of currency that can be determined, 6.5 trillion dollars are dollars, which means that nearly 60% of the money in the hands of governments is in dollars, and the rest is in the currencies of other countries. In the field of foreign exchange reserves, it can be said that the US dollar is the dominant one, and its advantage is greater than that of the payment field. The second to fourth foreign exchange reserve currencies are the euro, the Japanese yen, and the British pound, which are converted into US dollars of 21.5 trillion, 98.73 billion, and 530.36 billion respectively.
The renminbi ranked fifth, and it has been surpassed by the Canadian dollar since the second quarter of this year.
At the end of the second quarter, the Canadian dollar held by governments in US dollars reached 278.51 billion yuan, and the yuan was 272.99 billion yuan, a difference of 5.52 billion. Originally, it was thought that the third quarter could be overtaken but the results were not satisfactory, the renminbi as a foreign reserve currency was converted to 260.12 billion US dollars, and the Canadian dollar was 274.36 billion US dollars, and the gap widened to 14.24 billion.
Why is it that there are more and more scenarios for the use of RMB in the world, and the transaction volume of RMB is getting larger and larger, but the foreign exchange reserves of RMB held by various countries have not only decreased for three consecutive quarters, but also ranked sixth in the world after the Canadian dollar?
There are many reasons for this, among which the exchange rate factor plays a crucial role.
The renminbi began to depreciate in February this year, ushered in the peak of depreciation in the second quarter, and continued to depreciate in the third quarter. The offshore renminbi was trading at 6.87 at the end of March and depreciated to 7.29 at the end of September. Does depreciation affect the status of the renminbi as a foreign reserve currency? The answer is yes.
It should be noted that the amount of foreign exchange reserves announced by the IMF is all converted into US dollars, and the depreciation of the exchange rate means that the same amount of RMB foreign exchange reserves have "shrunk". For example, the RMB foreign reserve of 10 billion yuan can only be converted into 1.456 billion US dollars when the exchange rate is 6.87, and 1.372 billion US dollars when the exchange rate is 7.29, a difference of 8.4 billion.
Although the Canadian dollar has also depreciated, it is smaller than the renminbi, and the "loss" after converting into dollars as the foreign reserves of various countries is small, taking advantage of it.
In November, the renminbi began to appreciate, and the same amount of renminbi will increase when converted into dollars, so by the end of the fourth quarter, we will find that even if countries do not increase their holdings of renminbi reserves, the amount of renminbi converted into dollars announced by the IMF will increase, and it is unlikely that there will be four consecutive quarters of decline.
However, even this will not necessarily overtake the Canadian dollar by the end of the fourth quarter of this year, as the latter has also appreciated against the dollar since November.
The internationalization of the renminbi is unlikely to be smooth sailing, as is the ranking of foreign reserve currencies. We must neither be presumptuous nor arrogant. On the one hand, we should be full of confidence and make continuous efforts to improve the internationalization of the renminbi, and on the other hand, we must see the situation clearly and must not make wrong judgments and decisions based on blind confidence, otherwise our previous efforts and achievements may be in vain.