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China's Grand Project: RMB Internationalization

As the world is stepping into digitalization, so is the currency. In the era of digital money, China's ambition to cut down the impact of US dollars is more evident than ever. As the world's second largest economy, China relies on its well-established e-commerce platform to help promote the digital renminbi at home and abroad.

First Mover Advantage

As early as 2014, People's Bank of China (PBOC) began to pay attention to the research and development of blockchain technology and digital currency.

In 2016, the Digital Currency Research Institute of the People's Bank of China was officially established, and in 2017 it carried out the research and development of digital RMB (DC/EP). Shenzhen carried out digital currency research and mobile payment pilots.

On August 14, 2020, the Ministry of Commerce issued the "Overall Plan for Comprehensively Deepening the Pilot Program of Innovation and Development of Trade in Services", specifying that digital RMB pilot programs will be carried out in the Beijing-Tianjin-Hebei region, the Yangtze River Delta, the Guangdong-Hong Kong-Macao Greater Bay Area, and the central and western regions where conditions permit.

We cannot deny that China has been the leader in mobile payment for years. Its Alipay, WeChat, UnionPay, and other digital payment methods cover almost all domestic payment scenarios and penetrate many countries and regions.

At present, the digital renminbi has been applied in many cities and multiple scenarios. The digital renminbi has been connected to popular electronic payment platforms such as Meituan and Alipay for cooperation, and digital wallets have been implanted into these platforms for the promotion.

Moreover, China has been focused on its RMB internationalization in recent years as to

  1. Reduce the negative impact of US dollars on its economy;

  2. Enhance its global finance status and improve its position on the international stage;

  3. In bulk trade, RMB served as the alternative settlement method for its allies, such as Russia and Iran.

Strategic Beneficiary of Russia-Ukraine Conflict

Economists believe that geopolitical tensions and international financial market turmoil will provide opportunities for the People's Bank of China to carry out RMB swaps in relevant regions.

Since the outbreak of the Russia-Ukraine conflict in February 2022, the United States has escalated its sanctions against Russia, frozen the overseas assets of the Russian central bank, and banned several major Russian banks from using the SWIFT international settlement system.

Since the Russia-Ukraine conflict, Russia's systemically important banks have chosen to expand the RMB settlement scale. In 2022, the proportion of RMB settlement in Russia has increased nine times compared with 2015 and now accounts for about 25% of the total foreign currency settlement.

China launched the RMB Cross-border Interbank Payment System (CIPS) on October 8, 2015. As of December 2022, the CIPS system has 77 direct participants and 1283 indirect participants worldwide.

According to the report, CIPS is a "national backbone project in the RMB internationalization infrastructure", which will help promote economic and trade exchanges between China and countries and regions along the "Belt and Road". It will play an essential role in promoting the process of RMB internationalization.

Eye on the Transformation and Upgrading of the Industrial Chain

China has now become the world's second largest economy, with GDP accounting for 14% of the world's share, but the international status of the RMB lags far behind China's economic status.

As of September 2021, the payment amount of RMB in international trade accounts for 2.5% of the payment amount of all currencies and 2.5% of the global foreign exchange reserves. The problem of internationalization lag and its causes have attracted much attention.

China has a strong manufacturing capacity and the world's most complete industrial system. The manufacturing industry is multiplying. In 2021, the manufacturing industry will grow by 9.8% year-on-year, and its proportion in GDP will increase by 1.1 percentage points. However, insufficient price information, a low degree of inclusiveness, poor variety of products, single participants, inadequate supervision, and small market size in the China financial system, have caused uncompetitiveness compared to developed countries such as the United States.

Backed by the mainland and connected to the world, Hong Kong will occupy a pivotal position in the construction of offshore RMB.

Currently, China is cultivating more Chinese enterprises to become invisible and individual champions, focusing on the global layout of production lines and optimal allocation of resources to achieve supply chain adjustment, industrial structure transformation and upgrading, and value chain transition. Besides, China urgently needs to fully develop the vast space for industrial upgrading and technological innovation and expects to drive new economic growth points through technological progress.

With the improvement of China's international status and international credit, will the RMB also gain wider recognition in the international community?


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