September 26, 2022
BEIJING – China’s renminbi is expected to continue its steady rise in global use and play a bigger part in safeguarding international financial stability, as the country further advances its financial opening-up while deepening trade and investment cooperation, experts said.
Their comments follow a report released on Friday by the People’s Bank of China, the central bank, saying that the renminbi has played a growing international role in payment, investment, financing and foreign exchange reserves.
The renminbi internationalization composite index — a gauge created by the central bank to describe the extent to which a currency is internationalized — rose to 2.86 in the first quarter of the year, up 14 percent year-on-year, the report said.
The PBOC will steadily advance renminbi internationalization in line with the market-driven principle, the report said. The central bank pledged efforts to facilitate the use of the renminbi in cross-border trade and investment, deepen the financial market’s opening-up, promote local currency settlement with more central banks and enrich the products offered by offshore renminbi markets, according to the report.
Experts said the rising global profile of the renminbi can contribute to the world’s shift to a multipolar currency system that is less dependent on the greenback — a course that has become critical amid negative spillover effects caused by the US’ monetary tightening and the use of dollar dominance in sanctions.
Former PBOC governor Dai Xianglong said at a forum on Wednesday that the US’ tightening has made the defects of the global currency system more prominent, necessitating efforts to promote a diversified international currency system and to build a mutually beneficial cooperation mode based on free use of the renminbi.
Thanks to China’s significance in the global supply chain, the rising use of the renminbi can help buffer shocks in the global financial system brought by the US’ tightening, said Hu Zhihao, deputy director of the National Institution for Finance and Development.
For instance, Chinese companies can choose to provide their trade partners with renminbi-denominated financing to help them deal with the rising cost of financing in dollars, Hu said.
According to the central bank report, cross-border renminbi receipts and payments in non-banking sectors hit a record high of 36.6 trillion yuan ($5.1 trillion) last year, up 29 percent year-on-year.
Also, the share of the renminbi in global payments by value had risen to 2.31 percent in August, compared with 2.15 percent a year ago, said the Society for Worldwide Interbank Financial Telecommunication, or SWIFT.
Besides facilitating international trade and investment, experts said, the renminbi can also provide growing investment opportunities and diversification benefits for global investors as China’s financial market reform and opening-up enrich the renminbi investment environment.
As of the end of last year, foreign investors held 10.83 trillion yuan in onshore renminbi financial assets, up 20.5 percent year-on-year, according to the report.
Nevertheless, experts noted that renminbi internationalization still faces multiple challenges, particularly the renminbi’s recent depreciation pressure and headwinds facing the Chinese economy.
While remaining stable against a basket of currencies, the onshore exchange rate of the renminbi weakened against the dollar by more than 11 percent this year to 7.1 on Friday.
Against a more complicated geopolitical landscape, it may not be a good time to make big steps in internationalizing the renminbi, said Wang Tao, head of Asia economics at UBS Investment Bank.
Rather, it is sensible for China to cement the foundation for the global use of its currency, she said.