"We are facing a century of change in the global monetary system." Cheng Shi, chief economist of ICBC International, had an exclusive conversation with "Hong Kong 01" recently, explaining that the so-called "reform" means globalization is moving towards "regionalization" and the currency system is moving towards " Digitization”; and under the reform, the RMB has already been adjusted rapidly, combining “renminbi internationalization” and regional strategies to promote regional financial integration, and accelerating the promotion of “Central Bank Digital Currency” (hereinafter referred to as “CBDC”) ), the early launch of "Digital RMB" (e-CNY) to cater to the trend of the digital economy.
Cheng Shi discussed in depth how Hong Kong, as an "offshore renminbi hub" and studying the application of "digital Hong Kong dollar" (e-HKD) at the retail level, should seize the opportunity of change, build a renminbi-denominated securities market, and upgrade it from an international financial center to Digital International Finance Center.
The global currency system is facing a century of change, and the RMB has already accelerated its "internationalization" and "digitalization" based on this.
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Hong Kong 01: Many scholars have pointed out that the internationalization of the RMB has opened a new stage and a new cycle. What do you think?
What do you think are the "characteristics" of the new phase and new cycle?
In the future, how can the internationalization of RMB focus on exploring and deepening the direction?
What role will Hong Kong play?
Cheng Shi: The
internationalization of RMB has been in the process of rapid development, and every stage is very important.
I personally believe that, under the current background of the new crown epidemic superimposed on major changes not seen in a century, the internationalization of the renminbi has indeed entered a new stage. The characteristics of this new stage are:
On the one hand, the internationalization of the renminbi is more adapted to the new development trend of globalization. At present, globalization is changing from a single-center model to a multi-center model. Regionalization constitutes the foundation of globalization, and the focus of renminbi internationalization is more reflected in the Asia-Pacific region. , Especially along the One Belt One Road, which adapts to the new development needs of globalization and makes an important contribution to regional financial integration.
On the other hand, the internationalization of the renminbi is more adapted to the needs of financial evolution in the digital economy era.
The new crown epidemic has accelerated the development of the global economy from an offline model to an online model. Central banks around the world have entered the climax stage of research and development and piloting of digital currencies. Some academic discussions have been conducted on the development of globalization, which has created more opportunities for the reform and development of the international monetary system towards the digital economy era.
Hong Kong has always played an important supporting role in the rapid development of RMB internationalization and played an important role as an international financial center. In the future, this role will be further strengthened and its role will be further reflected.
Cheng Shi, chief economist of ICBC International, had an exclusive conversation with "Hong Kong 01" a few days ago and believed that Hong Kong has a lot to do with the changes in the global monetary system over the past century.
(Provided by interviewee)
"Globalization" towards "Regionalization"
to build RMB securities market through the Belt and Road Initiative
Hong Kong 01: You pointed out that the investment and financing gaps in the financial markets along the “Belt and Road” need to be filled urgently, and suggested that Hong Kong should seize the “Belt and Road” strategy when establishing a RMB-denominated securities market.
Could you please provide some simple examples and information to briefly introduce readers to the investment and financing situation along the "Belt and Road"?
Cheng Shi:
According to the World Federation of Exchanges, the number of more mature exchanges in the "Belt and Road" countries is small and the scale is small. At present, only the Korean and Saudi Arabian exchanges have relatively large market capitalization and turnover.
For the more developed and well-developed exchanges in the “Belt and Road” countries, such as South Korea and Saudi Arabia, their high-quality listed companies are mainly listed on the domestic exchanges (such as Samsung, Hyundai, LG, Aramco, Saudi Basic Industries, Saudi Telecom, etc.) ), which also makes global investors face certain thresholds when investing in these companies.
For the economies of the “Belt and Road” countries that are relatively small and whose capital markets are in the initial stage, there is no shortage of high-quality or potential companies. However, these companies are subject to the imperfections of their own exchanges and are difficult to obtain direct financing, which affects The company's capital replenishment and business expansion.
In terms of market size, the average market capitalization of companies listed on the “Belt and Road” countries exchanges is relatively small (approximately US$256.4 billion as of the end of 2020), and the total market capitalization of some exchange-listed companies is even only several billion US dollars, which directly weakens the transaction. The potential business scale of the company.
In terms of investor participation, the average transaction volume of the “Belt and Road” countries’ exchanges is relatively small, about 203.7 billion U.S. dollars, mostly below 100 billion U.S. dollars in the whole year. This is largely related to the small market value of exchange-listed companies Investor funds and limited awareness are related.
Hong Kong is located at the center of the “One Belt One Road”, with the status of an international financial center, the world’s largest offshore RMB market, a mature and complete Hong Kong exchange and an international investor base. The investment and financing channels it provides include RQFII, Shanghai-Shenzhen-Hong Kong Stock Connect, and direct Market investment, Bond Connect, etc.
If a securities trading platform denominated and settled in RMB can be established in Hong Kong, it will further release the market dividend of the return of Chinese concept stocks to Hong Kong, significantly enhance the status of the RMB as an investment and financing vehicle in the international financial market, and facilitate the process of RMB internationalization.
Hong Kong is located at the center of the "One Belt One Road", with the status of an international financial center, the world's largest offshore RMB market, a mature and comprehensive Hong Kong exchange and an international investor base.
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Hong Kong 01: If companies along the route are attracted to Hong Kong for investment and financing activities, will they give priority to "RMB"?
For example, the dim sum bond market has also shrunk in recent years due to the interest rate differential between China and the United States.
How can more companies in the Belt and Road choose "RMB" and use it as their investment and financing currency?
Cheng Shi:
Under the turmoil of the international environment and the impact of the epidemic, rooted in the gradual improvement of the exchange rate formation mechanism and sound economic fundamentals, the endogenous stability of the renminbi has gradually become prominent, making it an "anchor for investment and financing in the "Belt and Road" countries. "Currency" laid the foundation.
On the one hand, the effective exchange rate of the renminbi is more stable than most emerging market economies.
Comparing the 16 “Belt and Road” countries with hundreds of billions of dollars in exchanges, since 2016, the stability of the effective exchange rate of the RMB against a basket of currencies is better than that of most of the currencies.
On the other hand, the renminbi's "anchor" attribute to the currencies of the "Belt and Road" economies has gradually emerged.
Comparing the volatility of the exchange rate against the US dollar and RMB against the major currencies of the “Belt and Road” countries, we found that nearly half of the currencies have a more stable exchange rate against the RMB, and the currencies with a more stable exchange rate against the US dollar are mainly commodity currencies that are affected by petrodollars. Such as UAE Dirhams, Saudi Riyals, Kuwaiti Dinars, etc.).
Combining the above two factors, if the “Belt and Road” companies can use RMB to carry out investment and financing business in the future, it is expected to reduce the exchange risk that investors need to bear, and attract more high-quality capital from China and the world to fill the existing investment and financing gaps. It will also help the "Belt and Road" countries overcome the contradiction between underdeveloped financial markets and urgent economic development.
President Xi Jinping proposed the "One Belt One Road" plan, which fits the trend of globalization and regionalization.
The picture shows on October 30, 2018, the China-Europe Express train with a full load of cargo departed from the Xi'an platform and headed for Riga, the capital of Latvia.
(Xinhua News Agency)
Hong Kong 01: At present, there are three stock exchanges in Shenzhen, Shanghai and Beijing in Mainland China.
What product should Hong Kong start to explore when developing the RMB-denominated securities market?
Cheng Shi:
At present, the RMB financial products of the Hong Kong Stock Exchange include bonds, exchange traded funds (ETF), real estate investment trust funds (REIT), stocks, RMB fixed interest and currency derivatives, and commodity derivatives.
Among them, in the securities product market, RMB ETF transactions are the most active; in the derivatives market, RMB currency futures are the most popular.
However, due to the small number of listings, the total trading volume of securities traded in RMB relative to the motherboard market is still very low. The small trading volume of RMB currency products also affects the trading volume of RMB interest rates and exchange rate products.
Therefore, the key is to take advantage of opportunities to promote domestic and foreign investors to increase the scale of assets and liabilities denominated in RMB. On this basis, the demand for hedging RMB interest rates and exchange rate risks will also increase endogenously, and the types of RMB financial products will naturally be enriched.
Hong Kong 01: If a RMB-denominated securities market is established in Hong Kong, will it affect the status of the Hong Kong dollar?
Cheng Shi:
From the perspective of the monetary system itself, there is no substitution or competition between the Hong Kong dollar and the offshore RMB.
In terms of indirect effects, if the development of the RMB-denominated securities market in Hong Kong becomes an important driving force for the prosperity of the local financial market in the new era, it will enhance the status and attractiveness of Hong Kong as a financial center, and objectively strengthen the endogenous value of the Hong Kong dollar.
If the development of the RMB-denominated securities market in Hong Kong becomes an important driving force for the prosperity of the local financial market in the new era, it will enhance the status and attractiveness of Hong Kong as a financial center.
(Reuters)
Monetary system moves towards "digitalization"
Hong Kong seizes opportunities and advantages
Hong Kong 01: Can you use the digital renminbi as an example to introduce the concept and overview of the "central bank digital currency"?
Cheng Shi:
According to the "White Paper on China's Digital Renminbi Research and Development" issued by the People’s Bank of China (hereinafter referred to as the “PBOC”), the digital renminbi is a digital form of legal tender issued by the People’s Bank of China. Based on the account system, it supports the loose coupling function of bank accounts, which is equivalent to the real RMB, and has value characteristics and legal compensation.
As of June 30, 2021, there have been over 1.32 million pilot scenarios for digital RMB, covering areas such as life payment, catering services, transportation, shopping and consumption, and government services.
More than 20.87 million personal wallets and 3.51 million public wallets were opened, and the total number of transactions was 70.75 million with an amount of approximately RMB 34.5 billion.
China is at the forefront of the central bank's digital currency track, and has implemented digital RMB pilot projects in many mainland cities.
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Hong Kong 01: At present, mainstream digital currencies, such as Bitcoin and Ethereum, are more used as an "investment product."
What are the similarities and differences between the central bank's digital currency and it?
What is the significance of the research and development of digital renminbi to the development of the financial industry?
Cheng Shi:
Although mainstream digital currency is more regarded as an "investment product", it has an important innovation in mechanism design that can adapt to the currency needs of the digital economy era, that is, bypassing intermediaries to achieve peer-to-peer electronics Payment needs and guarantee a certain degree of anonymity.
The central bank's digital currency was also inspired by this and came into being, while improving payment efficiency and reducing the credit risk and liquidity risk exposure based on intermediaries.
According to the research report of the Bank for International Settlements, the use of central bank digital currency for cross-border payments can reduce at least half of the intermediary costs, and the payment time has been reduced from the original 3-5 days to 2-10 seconds, which greatly improves the traditional cross-border payment Pain points.
However, there is an important innovation in the mechanism design of digital currency, which can adapt to the currency needs of the digital economy era, that is, bypassing intermediaries to achieve peer-to-peer electronic payment needs and ensuring a certain degree of anonymity.
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Hong Kong 01: You once pointed out that "the problems of the original international currency system are difficult to solve in the original system", and you mentioned that "digital currency" may bring hope of breaking the game.
In your opinion, to what extent can the digital renminbi challenge the "dollar system" and help the internationalization of the renminbi?
Cheng Shi:
Although the digital renminbi itself cannot directly challenge the U.S. dollar system, we are facing a century-old change in the global monetary system. As major countries around the world have launched CBDCs to adapt to this development, China’s digital renminbi will have a first-mover advantage. .
According to the Bank for International Settlements research report "Multi-CBDC Arrangements and the Future of Cross-border Payments", a common unified standard "corridor" is established in the Multi-CBDC Bridge (hereinafter referred to as "m-CBDC Bridge") "On the Internet, central banks of various countries can issue depositary receipts in their national digital currencies on the Internet, realizing single-book delivery on the Internet.
For countries that have not launched a CBDC, the fiat currency settlement system of the central bank can also be connected to the "corridor" network.
This form can circumvent the US dollar-based SWIFT system, protect the sovereignty of countries with weak currencies, and at the same time help to achieve close, sincere, and beneficial international trade cooperation.
We expect that the multilateral central bank digital currency bridge will become an important form of the global digital currency system, and the People's Bank of China is expected to take this opportunity to seize the initiative in international rulemaking.
The Hong Kong Monetary Authority has participated in the development of the m-CBDC Bridge project of the Bank for International Settlements and is at the forefront of the world.
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Hong Kong 01: China is already the second largest economy in the world, and the importance of the renminbi in the international monetary system is increasing day by day. It is naturally necessary to study the digital renminbi.
However, the status of the Hong Kong dollar seems to be far less than that of the RMB. Is it necessary to develop a digital Hong Kong dollar?
Cheng Shi:
Compared with Hong Kong's economic scale, the Hong Kong dollar has a relatively higher status as an international currency.
According to SWIFT statistics, as of August 2021, the Hong Kong dollar accounted for about 1.28% of international payments, ranking 7th. Compared with August 2019, the proportion dropped slightly (1.48%), and the ranking remained unchanged.
In addition, the Hong Kong dollar ranks 9th in foreign exchange transactions.
For a long time, Hong Kong has been widely recognized as an international financial center. In the process of entering the era of the digital economy, if Hong Kong wants to continue to consolidate its position, it must seize this historical opportunity and fully implement its financial technology strategy.
Among them, the digital Hong Kong dollar is an important digital financial infrastructure.
Hong Kong 01: How about the research and development of Hong Kong's "central bank digital currency", the digital Hong Kong dollar (e-HKD)?
Cheng Shi: The
Hong Kong Monetary Authority recently released the "e-HKD: A technical perspective" white paper. In addition to discussing the background and significance of CBDC issuance, it also compares the advantages and disadvantages of different prototype designs of the CBDC system and proposes a more realistic version. The design plan, which explains in detail the design of the controllable anonymity mechanism, has high technical reference value and innovation.
The CBDC system design proposed in the white paper is basically the same as the mechanism design of the digital RMB, and both adopt a two-tier operating system.
Since Hong Kong adopts a note-issuing bank system, that is, the Hong Kong dollar is issued by three note-issuing banks, e-HKD can still follow this system. The public is open to accept e-HKD.
Hong Kong 01: What role does Hong Kong play in the exploration of digital RMB, and what preparations should it make in the future?
Cheng Shi:
Currently, the People's Bank of China, the Hong Kong Monetary Authority and other central banks have cooperated in the m-CBDC Bridge project initiated by the Bank for International Settlements, and the Hong Kong Monetary Authority has launched a pilot program for cross-border payments of digital RMB in Hong Kong.
In the future, in the process of exploring digital renminbi, Hong Kong will become an important window for the promotion and use of digital renminbi overseas.
We suggest that the Hong Kong monetary authority take advantage of its own professional experience in the CBDC research field, accelerate the digital transformation of financial infrastructure, and at the same time strengthen the interconnection of e-HKD and e-CNY in terms of technical standards.
Interconnection is not only in line with the gradual convergence of currencies between the Mainland and Hong Kong, but also conducive to the overall economic construction of the Greater Bay Area.
Therefore, it is necessary to consider docking at the infrastructure level in advance.
Central bank digital currency is an important infrastructure in the era of digital finance.
(Reuters)
Hong Kong 01: If the future exploration of digital renminbi continues to deepen and cross-border payment functions are opened, will the clearing bank business and offshore renminbi fund pools in Hong Kong be affected?
Will Hong Kong's role as an offshore RMB hub be weakened?
Cheng Shi:
Although digital renminbi can streamline the payment system and reduce redundant costs with a point-to-point design, digital renminbi adopts a two-tier operating structure, so the clearing bank business still needs to assume the key role of cross-border payments.
In addition, Hong Kong is the largest and most important offshore renminbi business center. In the early stage of digital renminbi exploring cross-border business, it is likely to rely on Hong Kong’s mature market experience.
Therefore, the role of Hong Kong's offshore RMB hub will not only be weakened in the short term, it will also be strengthened steadily and will have broader development opportunities.
Hong Kong 01: When you write an economic analysis article, you often quote "ancient poetry" as the beginning of your article, which is very interesting.
With regard to the topic discussed today, please also summarize it with a sentence of "ancient poetry".
Cheng Shi:
Hong Kong is near the sea. Let’s use this poem to describe my feelings: “The tide is wide on both sides of the strait, and the wind is hanging on the sail.” Although we are in an uncertain situation that has not happened in a century, Hong Kong and the RMB International The future is bright, and the future is promising!
