Renminbi Indexes Rise Last Week as Internationalization Supports Exchange Rate

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Xinhua Finance Shanghai, April 27 (Reporter Ge Jiaming) – Data released by the China Foreign Exchange Trade System showed that all three RMB exchange rate indices rose across the board in the week of April 24. The CFETS RMB exchange rate index stood at 100.08, up 0.2% week-on-week; the BIS currency basket RMB exchange rate index was 107.58, up 0.29% week-on-week; and the SDR currency basket RMB exchange rate index reached 95.19, up 0.22% week-on-week.

Last week (April 20 to April 24), the U.S. Dollar Index maintained a generally strong position but with moderate gains, rising 0.3% for the week. Non-U.S. currencies showed some divergence, with the euro depreciating 0.39% against the dollar and the Japanese yen falling 0.47% against the dollar over the same period.

The RMB demonstrated relatively stronger performance among major non-U.S. currencies. The central parity rate of the RMB depreciated by 52 basis points cumulatively over the week, while the offshore RMB appreciated 0.27% against the U.S. dollar for the week.

Li Liuyang, Chief FX Analyst at CICC Research Department, stated that the RMB’s relatively strong performance may stem from the combined effect of three factors. First, China’s relatively distinctive energy structure has mitigated downward pressure on the RMB exchange rate. Against the backdrop of rising global demand for energy transition, China’s export structure has shown notable resilience, providing support to the RMB exchange rate. Building on this, the marginal increase in RMB settlement in energy trade may have offered a buffer on the foreign exchange purchasing side during the recent Middle East conflict.

Second, the institutional framework for RMB internationalization in Middle Eastern trade continues to advance, potentially offering oil-producing countries corresponding channels for RMB repatriation and usage.

Third, domestic willingness to settle foreign exchange remains at a relatively high level. The recovery in settlement sentiment may be linked to exporters’ positive expectations for the RMB exchange rate and short-term exchange rate corrections, providing micro-level support for the RMB independent of dollar movements.

In Li’s view, the positive implications of RMB internationalization for the exchange rate are likely to persist. In the short term, if geopolitical tensions continue, the convergence of energy support, RMB settlement buffers, and high settlement rates may help maintain basic stability in the RMB/USD exchange rate, while the RMB could maintain a moderately strong position against a basket of currencies. The RMB still has some appreciation potential within the year. In the medium to long term, the process of RMB internationalization may provide additional support for the RMB exchange rate.

Ming Ming, Chief Economist at CITIC Securities, believes that as geopolitical dynamics intensify, the RMB’s role in payments and investment continues to gain prominence. With growing cracks in dollar credibility and heightened global geopolitical uncertainty, the pace of RMB internationalization is expected to accelerate. Accelerated RMB internationalization could enhance overseas entities’ recognition of and demand for RMB assets, potentially bringing incremental capital inflows to equity and bond markets over the long term and supporting the sustained performance of RMB-denominated assets.

(Source: Xinhua Finance)