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RMB "friends circle" is getting bigger and bigger

April 25, 2023

Recently, CNOOC and Total Energy completed the first cross-border RMB settlement of liquefied natural gas. Brazil's central bank has announced that the Chinese yuan has overtaken the euro to become the country's second largest international reserve currency. Obviously, the influence of RMB in the current international monetary system is increasing.

In recent years, the internationalization of RMB has accelerated significantly, and the "circle of friends" has been expanding. Data show that in 2022, China's cross-border RMB settlement volume exceeded 42 trillion yuan, a more than three-fold increase from 2017. At present, the RMB is the fifth most active currency for international payments, the fifth international reserve currency, and the third largest weighting in the IMF's Special Drawing Rights basket. The functions of the RMB as an international currency such as cross-border payment, investment and financing, reserve and valuation have been strengthened in all respects.

At present, the internationalization of RMB faces some good environment and opportunities. On the one hand, after more than 10 years of development, with the establishment of RMB clearing banks and local currency swap networks, the development of offshore RMB market, the opening of domestic financial markets and the continuous improvement of overseas layout of Chinese financial institutions, RMB has initially acquired network effects for international use. At the same time, with the deepening of the reform of RMB exchange rate formation mechanism, RMB exchange rate flexibility has been significantly enhanced, and enterprises are more willing to use RMB in cross-border trade, investment and financing to avoid the risk of currency mismatch. On the other hand, with the recovery of momentum in China's economic growth and the further opening up of the financial market, the investment and hedging function of the RMB has gradually increased. In addition, with the changes in the international geopolitical and economic development environment, the development of the international monetary system has become more diversified.

The orderly internationalization of the RMB contributes its unique strength to the establishment of a more stable, fair and diversified international monetary system. Of course, we should also be soberly aware that the RMB is still relatively low in internationalization. Its share in international payments is about 2%, which is much lower than that of the US dollar (about 40%) and the euro (about 38%). To better play the role of the RMB as an international currency, we need to speed up efforts to address such problems as its low right of discourse in trade pricing, fewer financial products and small size of offshore market.