Zhang Liqing: RMB liquidity arrangement is comparable to joining the SDR currency basket

Zhongxin Jingwei, August 12th: Zhang Liqing: RMB liquidity arrangement is comparable to the addition of SDR currency baskets

Author Zhang Liqing Director of the International Financial Research Center of Central University of Finance and Economics and professor of the School of Finance

On June 22, 2022, the International Clearance Bank (BIS) issued an official news announcement, announcing that the organization has passed a RMB liquidity arrangement (RMBLA) jointly formulated with the People's Bank of China. This arrangement will provide liquidity to the Central Bank of the Asia -Pacific region in the Asia -Pacific region in the form of a reserve fund pool plan. According to this arrangement, each participating central bank must subscribe for not less than 15 billion yuan or equivalent USD, stored in the International Clearance Bank to form a reserve fund pool. These central banks can seek funding support under this arrangement in the future market fluctuations.

These central banks can not only withdraw their shares under this arrangement, but also borrow additional funds through the mortgage liquidity window operated by the International Clearance Bank. The share of the window.

The first batch of participants in the arrangement were Central Banks in Asia and the Pacific, including Indonesian Central Bank, Central Bank of Malaysia, Hong Kong Financial Administration, Singapore Financial Administration and Chilean Bank of China, and the People's Bank of China. It is reported that some other economies from Asia, Africa and Latin America are interested and are actively preparing to join this arrangement.

At present, global economy and finance are in a turbulent period, and the international monetary system is facing major adjustments and changes. The establishment of RMBLA is of great significance.

Promote the construction of the global financial security network

After the outbreak of the global financial crisis in 2008, how to strengthen the global financial security network has attracted great attention from the international community. In order to cope with the subprime mortgage crisis, the Fed has implemented a three -round quantitative easing policy. The launch and exit of these policies have a significant overflowing effect on emerging market economies, leading to a significant fluctuation of cross -border capital flow, financial asset prices and currency exchange rates.

After the outbreak of the new coronary pneumonia in early 2020, the international financial market was turbulent. The three major US stock indexes had fuses four times within six trading days. The global economy has fallen into the worst economic recession since 1929 to 1933. More than 90 developing countries and emerging economy have put forward demands for liquidity support to the International Monetary Fund (IMF). Since 2022, the Fed has launched radical interest rate hikes in the past 40 years. From March to July, it has raised interest rates four times, with a cumulative 225 basis points.

Cross -border capital caused by the continuous interest rate hikes of the Federal Reserve will return to the United States, which will constitute severe challenges to developing countries and emerging economies. The typical impact is a large amount of capital outflow, the currency depreciation, and even the crisis of foreign debt. In the face of such a impact, a sound and sufficient global financial security network is very important.

For a long time, the traditional global financial security network includes four levels: that is, the IMF emergency loan, regional (or group) currency cooperation arrangement, bilateral currency exchange, and foreign exchange reserves. However, there are certain limitations at all these levels. For example, IMF's emergency loans often attach more stringent policy reform requirements (Conditionality). Therefore, many times the crisis countries tend to give up the seek fund rescue from IMF. Moreover, the number of IMF rescue funds is relatively insufficient, and often cannot meet the needs of large -scale rescue funds. After the new crown pneumonia's epidemic in 2020, about half of the member states expressed their desire to seek funding support to the IMF, with a cumulative approximately $ 2.5 trillion, but the IMF could only provide $ 1 trillion or meet the demand of 40%. Regional (or group) liquidity support, such as Chiang Mai initiated the multilateralization mechanism (CMIM) and the BRICS emergency reserves arrangement equivalent to the same lack of funds and attachment conditions. Although the bilateral currency swap agreement is generally not linked to the additional conditions of the IMF, it is often affected by the fundamentals of the relationship between the two countries. As for foreign exchange reserves, if the scale is too small, it is not enough to play a effect when dealing with the impact of crisis; if the scale is too large, it means high opportunities and exchange rate risks during normal times.

It is worth noting that since the outbreak of the US subprime mortgage crisis in 2008, the Fed is playing an increasingly important role in the global financial security network. From 2007 to 2008, the Fed and 14 foreign central banks reached a temporary US dollar liquidity exchange arrangement, which was intended to maintain a stable supply of global US dollar liquidity. In October 2013, six major global central banks from the Federal Reserve, the European Bank of China, the Bank of the United Kingdom, the Bank of Japan, the Bank of Canada, and the Bank of Switzerland converted the temporary bilateral liquidity swap agreement to the growth period. After the outbreak of the new crown pneumonia, the Fed announced the extension of the currency exchange agreement with Australia, Brazil, South Korea, Mexico, Sweden, Denmark, Norway, the New Zealand and the Singapore Financial Administration, and gave it 30 billion to 60 billion US dollars. Wait the liquidity quota to relieve possible liquidity tensions. In addition, in July 2021, the Fed also launched a repurchase convenience for foreign central banks and international agencies, allowing these foreign central banks and international institutions to set up accounts that set up accounts in the Federal Reserve for temporarily in exchange for U.S. dollar flows. sex. Generally speaking, although the construction of the global financial security network has been strengthened in the past 10 years, especially the Fed has begun to play an increasingly important role, in the face of an increasingly turbulent international financial environment, it has continued to strengthen its role and status. It is necessary. RMBLA, jointly constructed by the People's Bank of China and International Clearance Bank, can be described as at the time of it. At present, at least it can provide participants with a cumulative 180 billion yuan liquidity support, including the total 90 billion yuan or equivalent USD, and the 90 billion yuan equivalent provided by the BIS mortgage liquidity window through the BIS mortgage window. loan. With the entry of central banks in more countries and regions, the accumulated RMB liquidity will continue to grow, thus becoming an important force of the global financial security network.

Promoting monetary finance cooperation and stability in the Asia -Pacific region

At present, economic globalization has encountered reverse flow, and the United States is trying to re -obtain its dominant position in Asia through the "Indo -Pacific Framework". As a response, China should make full use of the "Regional Comprehensive Economic Partnership Agreement" (RCEP), a regional economic cooperation framework, and strive to strengthen economic ties with various economies in the Asia -Pacific region to hedge Sino -US economic and trade relations. The adverse effects. One of the basic features of RMBLA is to face the Asia -Pacific region, which is completely likely to become a new link connecting the economies of the Asia -Pacific region and an important mechanism to promote the stability of monetary finance in the region.

In May 2000, in order to learn the lessons of the Asian financial crisis and jointly maintain regional financial stability, China, Japan, South Korea and ASEAN countries signed the Chiang Mai Initiative (CMI). The essence of the initiative is the bilateral currency swap protocol network. Specifically, under this initiative, according to the bilateral currency exchange agreement signed with other member states, when facing difficulty in liquidity, the member states may ask the other party to rescue the other party by currency swap. According to this initiative, the People's Bank of China signed a bilateral currency swap agreement with the Central Bank of the Six Kingdoms. In 2007, the ten countries of China, Japan, South Korea, and ASEAN decided to propose Chiang Mai to propose multilateral (CMIM) in the form of a reserve, and in the following two years, it will be reached Consistent. In terms of exchange scale, after many capital increases, it has reached US $ 240 billion.

So far, CMIM may be one of the most important financial security networks in the Asia -Pacific region. However, it is not perfect. For example, the operating mechanism is loose and lacks binding. Although the reserve pool is adopted, there is no real payment system. This means that if there is no monetary and financial crisis, member states will still manage their own foreign exchange reserves in accordance with their wishes. Moreover, according to the "escape clause" in the agreement, any member state may be exempted from the responsibility for currency swaps with assistance to the application for the application of the country. For another example, CMIM is still linked to the additional conditions of the IMF in terms of loan conditions. Although after many adjustments, the current linked ratio has dropped to 60%, for many member states, when they need emergency assistance, they will always choose the bilateral currency exchange arrangements that are completely unprecedented.

In contrast, although RMBLA is still relatively small at present, it has obvious advantages in the design of the mechanism, including adopting real payment, binding, and no conditions. With the gradual increase of participants, RMBLA may surpass CMIM to become the most important regional financial security network in the Asia -Pacific region. At the same time, these advantages will also promote the continuous improvement of CMIM and improve their effectiveness and operability.

Promote the internationalization of RMB

Since its official launch in July 2009, the internationalization of the renminbi has developed forward in fluctuations and has achieved remarkable results. According to our estimates, as of April 2022, the RMB's accounted for 2.14%in the STM Financial Telecommunications Association (SWIFT) system, and USD and euro accounted for 41.81%and 34.74%, respectively. The proportion of RMB in the IMF official foreign exchange reserve currency composition is 2.88%, and the US dollar and euro each account for 58.88%and 20.06%. The proportion of RMB in the total global foreign exchange transaction is 2.2%, the proportion of the total liabilities of the global international banking industry is 1.1%, and the share of the global international debt securities financing accounts for 0.3%. In terms of comparison, currencies in developed countries such as the US dollar, euro, and yen are far ahead. It can be seen that, as a new international currency, although there is still a small gap with the currency of developed countries such as the US dollar and the euro, the renminbi has served as an international trading medium, value tools and value storage carriers to varying degrees. The establishment of RMBLA is the latest progress in the international development of the RMB, and its significance is that it is more than RMB to join the special withdrawal right (SDR) currency basket. BIS pointed out in this official announcement that "In the past years, the International Clearance Bank has also cooperated with the central banks issued by major reserve currencies to assist in implementing the liquidity support plan provided by these central banks to other central banks to alleviate market pressure and guarantee It has made contributions to financial stability. "It can be believed that this arrangement and the establishment of this arrangement with the People's Bank of China are not only fully affirmed by the internationalization of the RMB, but also as a bank of the central bank, its joint launch, dominance and leadership and Implementation is an important role in promoting the further development of the RMB internationalization.

RMBLA can stabilize transactions and exchange rates in the offshore market. At present, according to incomplete statistics, RMB deposits in banks in Hong Kong, Taipei, China, Singapore, and London, China are about 2 trillion yuan. When the internationalization level of the RMB continues to increase, the price and exchange rate stability of the offshore market will become very important. During the turbulent period of the international financial market, the opening of RMBLA will reduce the cost of borrowing the offshore RMB market and promote the stability of the RMB exchange rate, thereby encouraging more traders and investors to continue to use the renminbi as the pricing and settlement currency and investment financing currency. More central banks use it as a reserve currency and anchor currency.

RMBLA is the first multilateral RMB liquidity arrangement in the world. With the gradual improvement of relevant rules and systems, with the continuous enhanced network effects, it is expected that more and more central banks will participate. In the long run, when its scale is large enough, RMBLA, supported by the People's Bank of China, may play the role of "the last lender" in the global RMB system, and then continuously enhance the position of the RMB in the multi -reserve currency system. (Zhongxin Jingwei APP)

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Editor in charge: Wang Lei

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