Sunday, March 3, 2024

China calls for ‘wise’ internationalization of the renminbi as the pace of internationalization remains slow

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The Chinese government should push deeper into emerging markets and promote the use of the yuan abroad through loans and swaps next year, but must also remain cautious and prepared to avoid risks, the yuan said. officials and analysts claim.

The assessment comes as financial regulators seek to take a more pragmatic approach to fulfilling the Chinese government’s risk prevention obligations and expanding the influence of the Chinese currency abroad.

“It’s nonsense to promote it just for the sake of internationalization or for the frivolity of pursuing higher ranks and bigger scale,” said Guan Tao, chief economist at BOC International, the investment arm of the Bank of China. Stated.

He said at a forum last month that the focus is now on risk management and that Beijing has no intention of rushing the process.

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Guan, a former official at the State Administration of Foreign Exchange, said China’s financial opening up needs to go hand in hand with broader use of the renminbi abroad to contribute to the real economy, which produces and trades goods and services. he added.

These remarks echo statements made by the country’s leaders. Central Financial Work Conference in October, It has established risk prevention and mitigation as an “eternal overarching theme” for the entire financial sector.

This rhetoric suggests that efforts to tackle the pace of internationalization of the renminbi will move from an “orderly process” outlined in the political report of the 20th National Congress of the Communist Party in October 2022 to a “steady and steady process” in October 2022. , indicating a shift towards a “careful and robust” process. Financial conference presentation.

The Chinese government now appears to be favoring a phased approach to leveraging direct renminbi financing tools to encourage widespread use in all types of transactions, from trade settlements to loans.

China is one of the largest trading partners or major economic partners for 140 countries, so this should be leveraged for the renminbi.

Hu Xiaolian

Last month, Hu Xiaolian, a former deputy governor of China’s central bank, the People’s Bank of China, suggested that the Chinese government might consider a renminbi swap mechanism, which would exchange US dollar-denominated loans and debt.

“China is one of the largest trading partners or major economic partners for 140 countries, and we should leverage this for the benefit of the renminbi,” he said.

Most of China’s emergency loans to developing countries are denominated in renminbi, as is the Export-Import Bank of China’s deal with debt-stricken Sri Lanka.

The central bank is also accelerating currency swap transactions and the designation of overseas clearing banks.

This month: China and Singapore A pilot plan was agreed to allow visitors from either side to use the digital renminbi. This is another step forward as Project mBridge, a multilateral pilot system for the use of digital currencies for cross-border payments, moves closer to commercialization.

Since the first internationalization of trade payments began in 2009, the use of the renminbi abroad has increased rapidly.

The issue gained wider attention as de-dollarisation, or reducing dependence on the US dollar, became an area of ​​concern. Brazilian President Luiz Inacio Lula da Silva Urge emerging countries to use alternative currencies.

Brazil and the rest of the BRICS trading bloc (Russia, India, China, South Africa) are using the renminbi more frequently to conduct trade and investment.


Brazilian President Lula meets with President Xi, aiming to expand trade, increase Chinese investment, and discuss Ukraine issues

Brazilian President Lula meets with President Xi, aiming to expand trade, increase Chinese investment, and discuss Ukraine issues

This was particularly advantageous for Russia, as sanctions imposed on Russia following the invasion of Ukraine made the use of the US dollar and euro nearly impossible.

However, the renminbi still lagged far behind both currencies in all aspects, including the proportional representation system in payments, foreign exchange markets, commodity pricing, and foreign exchange reserves.

According to data from global interbank messaging service Swift, the renminbi slightly surpassed the Japanese yen in November to become the fourth most active currency in global payments by value, with a share of 4.61%. Ta. However, this is only a fraction of the 47.08% for the US dollar and 22.95% for the euro.

According to the International Monetary Fund, in terms of foreign exchange reserves of foreign central banks, renminbi-denominated foreign exchange reserves accounted for 2.45% of the world total as of the end of June, lower than the US dollar’s 58.9% and the renminbi’s 20%. . EUR.

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