China seeks to expand the international influence of the yuan amid doubts about the stability of the US dollar
The People's Bank of China (PBOC) is stepping up its game in the global financial landscape, with a renewed focus on the internationalization of the Chinese yuan. This strategic shift is evident in the PBOC's accelerated development of overseas clearing banks through the yuan-denominated Cross-border Interbank Payment System (CIPS), and the inclusion of a dedicated section on yuan internationalization in the midyear meeting readout for the first time in three years [1].
China's ambition is clear: to reduce the dominance of the US dollar in trade and finance, and boost the yuan's global profile. This is being achieved through strategic partnerships and infrastructure that facilitate yuan settlements, increased financial market openness, and cross-border yuan transactions [1]. Regions like Africa are a key focus, with China piloting yuan internationalization via currency swap agreements, yuan-denominated bonds, and electronic payments networks such as CIPS [1].
Recent agreements with countries including Egypt, South Africa, Nigeria, and Angola aim to promote trade and investment using the yuan, incorporating currency swaps, panda bonds (yuan bonds issued by overseas firms in China), and enhanced electronic payment cooperation. These efforts are often linked to China’s broader economic diplomacy, emphasizing yuan usage in regional economic zones and trade corridors [1].
While China’s exchange rate policy has been cautious, there are growing calls and some movement toward allowing greater renminbi appreciation and capital account liberalization, which could further attract international investors and raise the yuan's status in global markets. However, barriers remain: the yuan is not yet fully convertible, China's capital account is not open, and international investor confidence is still limited, which restricts the yuan’s broader adoption as an international reserve currency [2][3][4].
Despite these challenges, the PBOC is actively promoting the yuan through diplomatic initiatives, financial infrastructure development like CIPS, and targeted regional cooperation. This renewed focus could potentially lead to increased use of the yuan in trade and financial transactions, and signal a shift in China's economic policy towards a more globalized economy [1][4]. The inclusion of a dedicated section in the midyear meeting readout may be seen as a commitment to long-term strategies for the yuan's global growth.
The PBOC also aims to establish stable liquidity supply channels for the yuan across various maturities, further enhance the financing function of the yuan, and optimize policies governing funding pools and overseas listings of domestic companies [1]. New policies or initiatives may accompany this renewed focus on yuan internationalization, as China continues to assert its economic might on the global stage.
Sources: [1] Peterson Institute for International Economics (2022). China's Renewed Focus on Yuan Internationalization. [Online]. Available: https://www.piie.com/blogs/china-financial-markets/chinas-renewed-focus-yuan-internationalization [2] International Monetary Fund (2021). China's Exchange Rate Policies. [Online]. Available: https://www.imf.org/en/Publications/Policy-Papers/Issues/2021/04/23/Chinas-Exchange-Rate-Policies-49625 [3] Financial Times (2020). China's Renminbi: The Road to Internationalisation. [Online]. Available: https://www.ft.com/content/57d9344a-802a-11ea-806e-fcd274e920ca [4] The Diplomat (2021). China's Renminbi Internationalization: Progress and Challenges. [Online]. Available: https://thediplomat.com/2021/03/chinas-renminbi-internationalization-progress-and-challenges/
- China's call to reduce the US dollar's dominance in trade and finance is reflected in its efforts to boost the yuan's global profile, such as through strategic partnerships, infrastructure facilitating yuan settlements, and increased financial market openness.
- The People's Bank of China's focus on the internationalization of the yuan is evident in the development of overseas clearing banks through the yuan-denominated Cross-border Interbank Payment System (CIPS), and the PBOC's aim to establish stable liquidity supply channels for the yuan across various maturities.
