CITIC: RMB Internationalization May Accelerate Amid Geopolitical Volatility

CICC Fixed Income Research Team pointed out in their report that recent fluctuations in the geopolitical landscape around the Middle East are leading to a marginal weakening of the traditionally dominant U.S. system. The foundation of the U.S. dollar as the global reserve currency is being shaken, prompting Gulf countries to reconsider diversification paths for energy trade settlement and security cooperation. During the process of reconstructing the international monetary system, the internationalization of the renminbi and renminbi-denominated bonds may accelerate.

CICC stated that as the renminbi’s role in international trade pricing and payments continues to improve, market recognition of the currency and its assets will increase, which will also boost demand for renminbi assets. If China gradually becomes a capital exporter in energy, minerals, and other resource commodities, and upstream commodities shift to renminbi payments, this could to some extent promote the growth of offshore renminbi holdings and strengthen the potential for these funds to reinvest in the Chinese market.

CICC noted that although China’s nominal interest rates are still lower than most developed economies, real interest rates remain relatively high, and the renminbi is on an appreciation path. Investing in renminbi bonds can yield both exchange gains and potential capital gains. It is expected that overseas institutions, including sovereign funds, will increase their allocation to renminbi bonds, becoming a new force in bond market demand.