International Business News – The People’s Bank of China recently released the “RMB Internationalization Report 2022”, which shows that the indicators of RMB internationalization are generally positive, with RMB’s payment currency function steadily improving, its investment and financing currency function further deepening, its reserve currency function rising and its denomination currency function gradually strengthening. The report also shows that the opening of China’s financial market continues to advance and RMB assets remain highly attractive to global investors.
Third-party data also prove that RMB internationalization is steadily moving forward. According to the Society for Worldwide Interbank Financial Telecommunication (SWIFT), the RMB’s share of international payments will increase to 2.7% by December 2021, surpassing the Japanese yen to become the world’s fourth payment currency. And data released by the International Monetary Fund (IMF) on the currency composition of official foreign exchange reserves shows that the yuan’s share of global foreign exchange reserves reached 2.88% in the first quarter of 2022, ranking fifth among major reserve currencies.
Normally, the U.S. dollar is the main payment currency in international trade. However, the U.S. sanctions against other countries at every turn have made many countries wary, including India and Russia.
For example, Indian companies are using more Asian currencies to pay for their coal imports from Russia, bypassing the U.S. dollar and reducing the risk associated with violating Western sanctions against Russia, according to Reuters. In July, India’s coal imports from Russia rose sharply, with 31 percent of the non-dollar payments made in yuan and less than a quarter in euros, a trade source said.
Since the outbreak of the Russia-Ukraine conflict, Russia has also been consciously “de-dollarizing” and looking for alternative currencies due to U.S. sanctions. Russia’s Kommersant website reported on Sept. 23 that August statistics released by SWIFT showed that Russia ranked third in the world in terms of offshore payments in yuan, ahead of Hong Kong, China and the United Kingdom.
According to the report, the yuan is the preferred alternative currency to the dollar and euro for Russian banks in the process of “de-foreignization” of the industry. Russian Deputy Finance Minister Alexei Moiseyev said this preference is due to strong demand for the Chinese currency and a stable exchange rate. Director of the First Asian Department of the Russian Foreign Ministry Georgiy Zinoviev said that the share of Russian-Chinese local currency settlements is growing and the demand and volume of transactions in the yuan on the exchange is also increasing.
At the same time, the RMB is being used as a reserve currency by an increasing number of countries. With geopolitical conflicts threatening to erode the dollar’s dominance, central banks are beginning to seek to diversify their foreign exchange reserves with the yuan.
A July report on the Financial Times website noted that concerns about high inflation in the U.S. and the Federal Reserve’s efforts to combat it have also put the dollar under short-term pressure. The survey showed that reserve managers are looking for other alternative assets, such as securities, green lending and inflation-protected bonds, out of concern about holding dollar-denominated assets. Nearly half of the respondents said their portfolios are more diversified than last year.
While the dollar remains the world’s number one reserve currency, its lead has declined in recent years. Global central banks have reduced the dollar’s share of their foreign exchange reserves over the past 20 years, with a quarter of that reduction going to the yuan, according to IMF research released earlier this year.
Experts attribute the share growth to the rise of the Chinese economy and the internationalization of the yuan, the Russia Today TV website reports. They say the yuan’s share growth will also accelerate this year against the backdrop of mutual sanctions between Russia and the West and global financial chaos.
A new study shows that China’s dominance in global trade is increasing the yuan’s share of global central banks’ foreign exchange reserves, as also reported on Bloomberg News’ website in July. If China’s trade and yuan settlements continue to increase, the yuan’s share of reserves will grow, the study’s authors argue.
Experts say that as China’s economic power grows and the yuan’s influence increases with each passing day, the increase in the yuan’s share and size is an irreversible trend.