On July 21, the “Notice on Supporting Cross-border RMB Settlement of New Foreign Trade Business Forms” recently issued by the People’s Bank of China will be officially implemented.
The main contents of the “Notice” include
The first is to increase support for new foreign trade formats and improve cross-border RMB business-related policies for new foreign trade formats such as cross-border e-commerce. The second is to expand the scope of cross-border business processing of payment institutions from trade in goods and trade in services to all current accounts. The third is to clarify the business development and filing requirements for banks, payment institutions and other relevant business entities. The fourth is to clarify the requirements for business authenticity review, anti-money laundering, anti-terrorist financing, anti-tax evasion, and data reporting, consolidate the responsibilities of banks and payment institutions, and prevent and control business risks.
From the 21st, 1.4 billion people in China, 140 million people in Russia, 1.4 billion people in India, 220 million people in Pakistan, 80 million people in Iran, 600 million people in ASEAN, plus some non-European countries, can use non-US dollar payment systems. Easily exceeded 4 billion.
Economic downturn, many countries adopt non-US dollar settlement systems
The recent international situation has been turbulent. The new crown epidemic has combined with the downturn of the international economy, causing serious debt crises in some countries with poor economies.
Sri Lanka’s tourism industry has shrunk due to the new coronavirus and a series of government scandals have led to the country’s bankruptcy. The food, fuel and financial crises caused or exacerbated by the Russia-Ukraine conflict may destabilize poorer countries, causing more than 70 countries to step down. Sri Lanka follows in debt default.
When the economy deteriorates, the foreign exchange reserves in the hands of many countries are insufficient. In order to alleviate this problem, some countries have chosen the path of local currency settlement. Among them, the most well-known one is probably Russia. Of course, Russia passively withdrew from US dollar settlement due to sanctions. The system resulted in the introduction of a means of pricing energy in rubles. Of course, China can also buy it in RMB, because Russia can use RMB to buy Chinese goods. In addition to Russia, India has also recently launched foreign trade settlement in rupees. However, because Indian goods are not as hard currency as Russia, the rupee is still depreciating.
The launch of the RMB “settlement order” at this time is also timely.
The Fed raises interest rates, and the RMB remains strong to maintain its value
On the other hand, the RMB has another advantage at this stage, which is its value preservation. Due to hyperinflation, the Federal Reserve began to raise interest rates on a large scale, absorbing large sums of money back into the United States, causing the exchange rates of other countries against the US dollar to plummet.
In today’s international financial market, the currencies with the largest circulation are mainly the US dollar, the Japanese yen, the British pound, and the euro, with the RMB generally ranking fifth or sixth.
However, due to the Federal Reserve raising interest rates, the euro’s exchange rate was lower than the U.S. dollar for the first time in history, the pound’s exchange rate fell to the lowest in 16 years, and the Japanese yen’s exchange rate fell by more than 20%. For example, if a country’s yen foreign exchange reserves were originally worth US$10 billion, after this year’s devaluation, the value of these foreign exchange reserves will be less than US$8 billion, and the country will suffer a direct loss of more than US$2 billion.
At this time, a strong RMB exchange rate can directly reduce losses for countries holding RMB foreign exchange reserves, and China’s strong manufacturing industry is the backer of the RMB. Other countries using the RMB “can neither suffer losses nor be cheated.”
What impact will it have on textile foreign trade companies?
The editor has heard more than once that textile companies engaged in foreign trade say that exchange rate fluctuations are a headache. If the exchange rate is high, their profits will be low. If the exchange rate is low, customers will lower prices. Maybe the exchange rate will rise again after a while. Sometimes I take an order and work hard for several months, but when the exchange rate changes, all my hard work is in vain.
From a small perspective, if settlement can be made directly in RMB, there is no need to consider the impact of exchange rate fluctuations on corporate profits and unnecessary losses will be reduced; from a large perspective, because of the hegemony of the US dollar, the United States will reap the benefits at regular intervals. In the face of the wave of the world, China has also suffered a lot in the process of opening up to the outside world. The improvement of the status of the RMB is an indispensable part of China’s rise. By then, there may be less unwarranted things like Xinjiang cotton. Textile people are in You can also feel confident doing business overseas.
Postscript
Recently I was reading the book “Pricing Power” by Zhang Jie, which describes that the value of currency lies in its liquidity. Only when more and more people are willing to use it can currency become credible, and this requires strong national power to back it up.
The current situation is undergoing major changes that have not been seen in a century. I believe that in the near future, textile people will use RMB on more and more occasions when doing foreign trade.
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