China steadily advances yuan internationalization
With solid efforts to promote yuan internationalization, China has seen a strengthened role for the currency across the board, from international payments and settlements to investment and financing, and from reserves to pricing.
The People’s Bank of China (PBC), the country’s central bank, published an article saying it will steadily advance the currency’s internationalization and make it more convenient to use the yuan in cross-border trade and investment.
The following are some facts, figures, and policy priorities of the central bank in prudently boosting the yuan’s international usage.
Remarkable progress
After decades of development, the yuan has shown vitality and secured more global visibility. Nearly half of all cross-border transactions conducted by Chinese financial institutions, enterprises and individuals are settled in the yuan.
With the exchange rate becoming more flexible and two-way fluctuations becoming the norm, market players have a stronger intention to use the yuan in cross-border trade and investment to reduce currency mismatch risks.
China’s cross-border yuan receipts and payments in non-banking sectors reached 27.8 trillion yuan ($3.91 trillion) from January to August, up 15.2 percent year-on-year, according to data from the central bank.
Thanks to the opening of China’s financial market, the yuan has played a bigger role in investment and financing. The share of securities investment in cross-border yuan receipts and payments increased from about 30 percent in 2017 to around 60 percent in 2021.
Since 2017, yuan bonds have been included in three international bond indexes.
In recent years, the need for the world’s central banks to hold the yuan as part of their reserves has increased significantly, thanks to the diversification trends of reserve assets and the inclusion of the yuan in the IMF’s Special Drawing Rights (SDR) basket.
The share of the yuan in the SDR basket has risen from 10.92 percent in 2016 to 12.28 percent in May 2022, reflecting a growing recognition worldwide of the improvement in the free use of the currency.
In the process of internationalization, China upholds the principle of letting the market be the driver, and it pursues mutual benefits and win-win cooperation. The PBC said that using the yuan in neighboring countries and regions, as well as Belt and Road countries, has injected impetus into local economy.
Currency’s rising status reflects confidence in economic development
Future outlook
In the future, the central bank will strengthen coordination between domestic and foreign currencies, facilitate market entities to use the yuan more, and promote innovation in yuan crossborder investment and financing.
It also pledged to improve the liquidity of yuan-denominated assets, simplify the process for foreign investors to enter the Chinese market, and enrich the types of investable assets.
More efforts will be made to explore cooperation on local currency settlement with the Association of Southeast Asian Nations and neighboring countries, promote direct trading between the yuan and relevant currencies, and support overseas countries and regions in developing local yuan foreign exchange markets.
The central bank will also improve the offshore yuan liquidity supply mechanism and give full play to the positive role of clearing banks in cultivating the offshore yuan market.
Currency internationalization is a long-term process and a result of improved overall national strength.
The yuan is inevitably becoming a global currency as China grows stronger and deepens its reform and opening-up. Meanwhile, the rising international status of the yuan also reflects the international community’s confidence in China’s economic development, said the PBC.