According to a quarterly survey carried out by the IMF, the proportion of renminbi-denominated assets held by global central banks hit an all-time high in the first quarter of 2020. The renminbi’s share of global foreign exchange reserves rose to 2.02% in Q1’20, up from 1.9% in the previous quarter; the highest level recorded by the IMF since the currency was first included in the IMF’s SDR basket. The renminbi sits above the likes of the Aussie dollar (at 1.55%) and Canadian dollar (at 1.78%).
Despite the obvious impact of the virus outbreak on China’s economy, all three major rating agencies recently affirmed their A1/A+/A+ ratings for China. In its rating review S&P said: “We believe the increasing global use of the renminbi bolsters China's external financial resilience.” Adding: “the renminbi was traded in 4% of foreign exchange transactions globally. We therefore assess the renminbi as an actively traded currency. Demand for renminbi-denominated assets has increased in recent years. We expect the share of renminbi-denominated official reserves to continue to rise. If the renminbi achieves reserve currency status (which we define as more than 3% of aggregated allocated international foreign exchange reserves), it could strengthen external and monetary support for the sovereign ratings.”
Granted, the renminbi’s share is dwarfed by the dominant dollar, which stood at 61.9%, up from 60.8%, of the total world reserves totalling USD 221.48bn in Q1’20. However, there is no doubt that the trend for the renminbi is upward and confidence in the currency is growing; which will please Chinese policymakers who have been pushing for the internationalisation of the currency. The adoption of China's central bank digital currency (CBDC) will no doubt support this push; we expect to hear more on the official launch of the DCEP (or Digital Currency Electronic Payment system) in the coming months as other nations including Italy join the race.