01, Appreciation of the Chinese Yuan

During the long holiday, overseas financial markets continued to trade as usual, but the foreign exchange market on Monday was relatively flat, with no significant rise or fall in the Chinese yuan.

In the three full trading days before the holiday, the Chinese yuan actually appreciated noticeably.

On Wednesday, the lowest exchange rate of the yuan broke below 7.26. On Thursday, the lowest exchange rate was only 7.21, and on Friday, the lowest exchange rate was 7.14. The low points in the three consecutive trading days were all rebounding continuously.

The same goes for the high points, with the yuan reaching a high of 7.14 on Wednesday, returning to a high of 7.08 on Thursday, and even reaching a high of 7.07 on Friday.

At present, it seems that the offshore exchange rate of the Chinese yuan against the US dollar may still rise further during the long holiday period. The US dollar also appears to have lost its momentum to continue to rise.

The stability of the yuan exchange rate is closely related to the continuous improvement of the yuan's global status.

Advertisement

02, Increase in Global Foreign Reserve Share

Nowadays, more and more countries are striving to diversify the assets in their foreign exchange reserves and reduce their dependence on the US dollar.

In the latest data, the total share of the yuan in the foreign exchange reserves of countries around the world has risen to the 5th position, with at least 90 central banks including the yuan in their foreign exchange reserves.This year, due to the continuous decline in the price of U.S. Treasury bonds and the persistent interest rate hikes by the United States, an increasing number of central banks have chosen to reduce their U.S. dollar assets. After selling U.S. Treasury bonds, a significant amount of funds have flowed into the Chinese yuan.

When the Chinese yuan was just included in the SDR in 2016, its proportion in global foreign reserves was only slightly over 1%. However, in the most recent quarter, this proportion has increased to 2.88%.

Among them, Russia has repeatedly claimed that it will further increase its holdings of the Chinese yuan, raising the proportion of the Chinese yuan in Russia's foreign exchange reserves.

03, Selling U.S. Treasury Bonds and Buying Chinese Yuan

It is actually quite easy to understand why foreign capital continues to buy Chinese assets.

Many people only see the depreciation of the Chinese yuan against the U.S. dollar, but overlook that, apart from the U.S. dollar, the Chinese yuan has appreciated against most other currencies. Or, in this round of strong appreciation of the U.S. dollar, the depreciation rate of the Chinese yuan is far lower than that of the euro, pound, and yen.

We can imagine such a scenario: a country sees the price of U.S. Treasury bonds falling continuously, and central banks around the world are selling U.S. Treasury bonds together. The central bank of this country also chooses to continuously reduce its holdings of U.S. Treasury bonds to avoid risks.

But after selling U.S. Treasury bonds, what assets should be bought?

Although the U.S. dollar is appreciating, having too concentrated U.S. dollar assets actually poses a greater risk. At this time, when it is discovered that the Chinese yuan is also appreciating, buying Chinese yuan assets has become a very good choice.

In addition to being able to buy Chinese yuan bonds, it is believed that some of the foreign capital is also willing to buy A-shares.In the first three quarters of this year, Northbound funds have seen a net inflow of over 50 billion yuan.

If we look at the data on a monthly basis, out of the first nine months of this year, only three months experienced a net outflow, while the remaining six months all saw a net inflow.

04, Rising Status in Payments

In the realm of payments, the international payment status of the Chinese yuan has surpassed that of Japan, becoming the fourth most used currency globally for payments, and its share in international payments continues to increase.

At the end of last year, the share of the Chinese yuan in global payments was 2.7%. Just one month later, it further increased to 3.2%. Although there is no recent data available, based on numerous events that have occurred this year, we have reason to conclude that, up to now, the share of the Chinese yuan in international payments should have further increased.

Especially after the outbreak of conflict in Europe, Russia has required other countries to use rubles or Chinese yuan for the purchase of energy products.

At the same time, Australia has also started to use Chinese yuan for the settlement of iron ore exports to China. Even India, when purchasing coal from Russia this year, surprisingly used Chinese yuan for payment.

The agreement between Saudi Arabia and China regarding the settlement of oil in Chinese yuan is getting closer to completion.

It can be imagined that the proportion of Chinese yuan payments will further increase in the future.