While the Chinese government has been promoting RMB internationalization vigorously, the Chinese people are simultaneously moving at an accelerated pace towards internationalization. This acceleration could be well demonstrated by the settlement of foreign exchange transactions among the foreign receipts of both the enterprises and the individuals (settlement ratio), and the PBOC’s holdings of short positions in forwards and futures in foreign currencies vis-à-vis RMB.

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Now, let’s use two sets of data - banks’ collection of foreign currency receipts on behalf of enterprises and individuals, and foreign currency settlements to calculate the settlement ratio.

The monthly average settlement ratio of enterprises and individuals’ foreign currency receipts is around 71% during the period between January 2014 and June 2015.


Prior to the drastic move of RMB depreciation on 11th August 2015, the settlement ratio had already fallen dramatically from 76.6% in June to 71.3% in July. The ratio keeps on decreasing and bottomed out at 57.6% in October this year. This declining trend continues after the one-time devaluation of RMB and subsequent tightening of foreign exchange controls.


The settlement ratio of foreign currency receipts can be interpreted as the willingness of enterprises and individuals in settling their foreign exchange transactions. We can assume that the higher the ratio, the more optimistic these enterprises and individuals are towards the future value of the RMB, and vice versa.

 

FX Settlement Ratio,FX vs RMB Short Position

 

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Recently, PBOC has immensely increased the holdings of short positions in foreign currency forward and futures contracts. Such a move seems to reveal that there is still room for further RMB depreciation.