What is the impact of local currency settlement on international trade?



In fact, a long time ago, I told you during the live broadcast, let's say we can't use either RMB or rubles in our trade with Russia, we have to use US dollars. Russia has to exchange rubles into dollars to buy our products, and we have to exchange RMB into dollars to buy Russian products.

1. What is a "currency swap agreement"?

In fact, a long time ago, I told you during the live broadcast, let's say we can't use either RMB or rubles in our trade with Russia, we have to use US dollars. Russia has to exchange rubles into dollars to buy our products, and we have to exchange RMB into dollars to buy Russian products.

You see, everyone is actually using what? A third party international currency. There are at least two problems with this, which two problems?

First, the cost has increased. Why does it increase? You use other people's currency, and then use other people's settlement system, you have to pay the corresponding fees, this is inevitable.

Second, the United States sanctions Russia, they are not allowed to use the U.S. dollar settlement, then ask what they rely on in international trade to buy and sell? This is very troublesome. Just like we have money on hand, but they do not allow you to use, the money becomes a pile of paper, which has a very big impact.

Therefore, we have signed currency swap agreements with many countries. How to swap it? Let's say we and Russia, we both agreed on an exchange rate, do an "arithmetic problem", how many rubles for 10,000 U.S. dollars, how much RMB for 10,000 U.S. dollars, we all according to this exchange rate, at this time relatively equivalent value. The settlement will be in the other party's currency, or in their own currency, which is called a "currency swap agreement".

Think about it, if the amount of currency swap becomes larger, to what extent? The trade between the two countries is completely currency swap, in fact, there is nothing to do with the dollar, its role is equivalent to a ruler, to do a benchmark, the agreed exchange rate.

2, why some countries want to use the yuan settlement?

So which countries can be settled in RMB between China and them?

We have collected a lot of information, but one problem with the Internet nowadays is that there is a lot of data, but it is not very accurate. There are more than 30, but it doesn't say the exact number. And which countries are there?

North Korea, Mongolia, Pakistan, Vietnam, Laos, Myanmar, Nepal, Kazakhstan, etc., and some countries with which we have a large amount of trade, such as Iran and Russia. Other countries, such as Singapore, Indonesia, Korea, Malaysia, Germany, UK, Argentina, Canada, etc.

Have all these countries started RMB settlement?

I have also learned that some are talking about it, and some have indeed started. Note that it is already important to talk about it, because when an agreement is signed, it will be slowly implemented, and at least both countries have the legal basis to settle in RMB.

And we can also think, if all do not use the dollar, the United States is happy? Of course it will shake the hegemony of the dollar, there is no doubt about it. So why are these countries willing to do this with China, not afraid to offend the United States?

Think about it, which country wants to use someone else's currency? It's better to use your own currency, right? Since they all want to use their own currency, they will swap it, at least to reduce transaction costs. No more intermediate currencies, no more going round to that account, no more earning finance charges on that account.

In addition, as we all know, we are such a large market, the world's second largest GDP, and there is even news that the United States has adopted a resolution, saying that we are a "developed country", what does this mean? At least China is a very large market, is a very large trading partner.

For example, we are the largest trading partner of Iran for 10 years. Iran mainly sends oil to China, and using the RMB settlement will reduce transaction costs and avoid future dollar jams that will prevent them from going through the settlement system. So by doing this, at least you are guaranteed to have a channel.

I think, from a risk perspective, these countries want to open this channel, just in case.

3, the yuan into an international currency, the road is long and difficult

Some people may say, in the future, all may use the RMB, the RMB international status will be improved, the RMB will definitely become an international currency.

But to be honest, the road is long, it is still early. Why do you say it is still early? Because it's not that easy, why?

In fact, there are two most important reasons.

First, in terms of the process, it is only the trade between China and these countries that is settled in RMB, but not the transactions with other countries.

Second, the biggest obstacle is that the RMB is not fully convertible, not a real, freely convertible currency, so there is no way to turn it into a real international currency.

But because of our size and international influence, there is no doubt that the RMB is gradually becoming internationalized. I read a message that China is now the fifth largest payment currency in the world, whether it's international trade or includes domestic, it's not sure yet. In addition, it is also the third largest trade financing currency and the fifth largest international reserve currency.

In short the more developed a country is, the more international its currency is. The reason for this is simple, because the economy is developed, more people do trade with them and more currencies are used, so this is related to international status.

Our international status is improving, so the internationalization of the RMB must be accompanied by the improvement of China's international status, which is certain. However, there is still a way to go before the RMB can truly become an internationalized global currency, but I believe that it will eventually happen.

More than 20 countries have signed currency swap agreements with us, and the size of the currency swap is said to have reached 2 trillion yuan. These include South Korea, Malaysia, Indonesia, Mongolia, Singapore, New Zealand, Uzbekistan, Kazakhstan, Thailand, Pakistan, UAE, Australia, etc. There are more important ones, like South Korea, UK, Russia, etc., and even Argentina and Brazil recently.

I am more concerned about Brazil, France, why Brazil is important? Because China imports a lot of grain and ore from Brazil, and grain and iron ore have a great impact on China's economy.

China and Iran and Saudi Arabia have also used RMB settlement, mainly for oil.

So RMB settlement is very important for China in the future to avoid having anyone stuck in the neck.


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