On August 22, data released by the Society for Worldwide Interbank Financial Telecommunication (Swift) indicated that the international payment value share of the Chinese yuan (RMB) rose to 4.74% in July this year, reaching a new high since data records began.

Previously, data disclosed by the State Administration of Foreign Exchange (SAFE) showed that in July, foreign investors' net holdings of domestic bonds increased by US$20 billion, a 140% month-on-month increase, indicating that the enthusiasm of overseas investors to allocate RMB-denominated assets remains high.

01 Record-High Global Payment Share of the RMB
The global payment share of the RMB continues to rise. The latest data disclosed by Swift showed that in July, the international payment value share of the RMB increased from 4.61% in June to 4.74%, staying above 4% for nine consecutive months and reaching a new high since data records began; the international payment ranking remained the fourth globally for nine consecutive months.

Swift pointed out that compared with June, the payment value of the RMB in July grew by 13.37%, while the payment value of all currencies increased by 10.29%.

The data also showed that in July, among the top currencies in terms of payment value, the US dollar, euro, and British pound ranked the top three with shares of 47.81%, 22.47%, and 7.00%, respectively.

In July, the share of the RMB as a global currency in the trade financing market reached 6%, surpassing the 5.83% share of the euro and ranking second only to the US dollar.

Recently, the international influence of the RMB has significantly increased, with its "circle of friends" further expanding. Specifically, on August 19, the People's Bank of China (PBOC) and the State Bank of Vietnam officially signed a memorandum of understanding on cooperation, aiming to deepen cooperation between the two countries in areas such as local currency settlement, swaps, and cross-border payment interconnectivity. Prior to this, on May 21, the PBOC had reached a similar agreement with the Bank of Thailand to promote bilateral local currency transaction cooperation.

Particularly noteworthy is the increasing popularity of the Cross-border Interbank Payment System (CIPS) among global financial institutions. According to statistics, in July alone, the CIPS system added 2 direct participants and 6 indirect participants (including 1 domestic institution and 5 overseas institutions), demonstrating the rapid expansion of the system globally. As of the end of July, the CIPS system had 150 direct participants and 1,401 indirect participants worldwide, covering 117 countries and regions in Asia, Europe, Africa, North America, Oceania, and South America. Its business network reaches 184 countries and regions through more than 4,700 corporate banking institutions.

In terms of cross-border RMB business, the latest report released by the People's Bank of China (PBOC) indicates that this business continues to maintain a growth trend. In the first half of the year, the cumulative amount of cross-border RMB receipts and payments reached 30.6 trillion yuan, an increase of 25% year-on-year, achieving a basic balance between receipts and payments. Among them, the amount of cross-border RMB receipts and payments under current account was 7.7 trillion yuan, an increase of 22% year-on-year, including 5.9 trillion yuan for goods trade and 1.8 trillion yuan for service trade and other current account transactions. Meanwhile, the amount of RMB receipts and payments under capital account reached 22.8 trillion yuan, an increase of 26% year-on-year.

Facing the uncertainties in the international financial market, the PBOC has reiterated its exchange rate policy stance, which is to adhere to a managed floating exchange rate system based on market supply and demand and with reference to a basket of currencies. The bank emphasizes that it will give full play to the decisive role of the market in the formation of exchange rates, stabilize market expectations through comprehensive measures, resolutely correct procyclical behaviors, prevent the formation of unilateral and self-reinforcing expectations, thereby effectively preventing the risk of exchange rate over-adjustment and maintaining the basic stability of the RMB exchange rate at a reasonable and balanced level.

02 Foreign Investors Actively Allocate RMB Assets
Recently, data disclosed by the State Administration of Foreign Exchange (SAFE) showed that in July, foreign investors net increased their holdings of domestic bonds by US$20 billion, a 140% month-on-month increase.

SAFE pointed out that the cross-border capital flow situation in July was positive, with the supporting role of major inflow channels such as trade in goods further strengthened. In July, the foreign-related income of banks on behalf of clients increased by 9% month-on-month, while expenditures increased by 7%, narrowing the month-on-month deficit by 41%. Among them, China's foreign trade continued to grow rapidly, driving a 48% month-on-month increase in cross-border net capital inflows under trade in goods, reaching the highest level for the same period in history. Foreign investors net increased their holdings of domestic bonds by US$20 billion, a 140% month-on-month increase, indicating that overseas investors remain highly motivated to allocate RMB assets.

The State Administration of Foreign Exchange (SAFE) stated that in the future, with the improvement of internal and external environments, the positive factors for the smooth operation of China's cross-border capital flows will further increase. Internally, the Third Plenary Session of the 20th Central Committee of the Communist Party of China has systematically deployed further comprehensive deepening of reforms and the promotion of Chinese-style modernization, which has effectively boosted market confidence, and the domestic economic recovery and positive momentum will be consolidated and strengthened. The reform and opening-up in the foreign exchange sector will continue to deepen, and the resilience of the foreign exchange market will continue to improve. Externally, international trade is expected to resume growth, with the World Trade Organization forecasting that global merchandise trade volume will shift from a 1.2% decline in 2023 to a growth of around 2.6% in 2024. Meanwhile, expectations for interest rate cuts by the Federal Reserve have intensified, and major non-US currencies have stabilized and rebounded recently, indicating that the international foreign exchange market environment is expected to gradually improve.

Huatai Futures noted that while China's foreign exchange settlement and sales deficit widened in July, the deficit in bank-handled foreign-related receipts and payments narrowed, and the current account shifted from a deficit to a surplus. This indicates that the increase in the trade surplus in goods has provided support to the foreign exchange market. Despite the persistent deficit in foreign exchange settlement and sales, the growth in spot inquiry trading volume and forward transaction signing amounts demonstrates an increase in market participants' confidence in the RMB exchange rate. The RMB exchange rate may be supported by these positive signals. In particular, the increase in the signing amounts of forward exchange settlement and sales suggests that enterprises are optimistic about the outlook for the RMB exchange rate. This confidence may alleviate some of the pressure from the foreign exchange settlement and sales deficit and contribute to stabilizing or slightly appreciating the RMB exchange rate against the US dollar.

Ping An Securities stated that since late July, as market expectations for interest rate cuts by the Federal Reserve and interest rate hikes by the Bank of Japan have intensified, and market volatility has risen, there has been a large-scale unwinding of global carry trades. The onshore RMB exchange rate against the US dollar has risen from around 7.27 to stabilize near 7.17, appreciating by around 1,000 points. The impulse of RMB appreciation brought about by the unwinding of narrow-sense carry trades has ended, and attention should be paid to the private sector's foreign exchange settlement and sales situation thereafter. Additionally, Nanhua Futures expressed that after the rapid appreciation of the RMB, the pressure of cross-border capital outflows in July has eased somewhat, and the enterprises' exchange settlement rate has increased. However, there are still disagreements in the market regarding future trends, and further observation of variable factors is needed.