China Touts RMB Assets in Central Bank Reseves

The U.S. dollar will inevitably decline in its share of global trade and reserve assets, but in order for a tipping point to be reached here, the renminbi must rise along with the U.S. dollar. Thus far it has risen along with the dollar, relative to foreign currencies, but will it continue if the dollar rises another 10, 15 or 20 percent?
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At the same time, market rumors that a number of European central banks are incorporating RMB into their own foreign exchange reserve assets. Among them, the SNB stated clearly in its annual report that the renminbi is one of the options for diversification of its foreign exchange reserves. In addition, the Belgian Central Bank is said to have subscribed for an equivalent position of RMB 200 million in renminbi, and the central banks of Spain and Slovakia are brewing to buy renminbi positions.

In the opinion of the Hong Kong foreign exchange traders mentioned above, the renminbi is favored by central banks of all countries. There are four major factors: First, the strong rebound of the US dollar and the sharp depreciation of several emerging market currencies. In contrast, the resilience of the renminbi is particularly significant. From April 18, the depreciation rate of the central parity of the RMB against the US dollar in the past 27 working days was only 1.9%, which was far lower than the exchange rate of other emerging market countries. Therefore, many national central banks believe that the defensive performance of the RMB effectively reduces its foreign exchange Reserve the risk of devaluation of non-US currency assets. Second, compared with other emerging market countries, due to factors such as falling solvency, increased pressure on capital outflows, and high inflation, credit ratings may be lowered. The fundamentals of China’s economic growth ensure that its credit rating remains stable, and the RMB gains a valuation advantage. . Third, in countries with the same credit rating, the renminbi bond yield is still at the leading position. Coupled with the increasing liquidity of RMB bonds, many countries regard renminbi assets as one of the sources of new value-added and increase in foreign exchange reserve assets. Fourth, the CFETS RMB exchange rate index rose by nearly 2.6% in the first five months of this year. For some central banks, it is undoubtedly an ideal alternative to achieve diversified asset allocation.

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