Renminbi (RMB)/Yuan Appreciation & Internationalization

Dollar-denominated cross-border bank lending to emerging market economies (EMEs) declined almost 10 percent between the start of 2022 and early 2024.

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According to our analysis using both public and restricted BIS banking statistics, this is largely because of a shift in the currency composition of lending abroad by Chinese banks. With both economic and geopolitical considerations supportive of the trend, Chinese banks have notably reduced their dollar lending to other emerging market economies (EMEs), increasing lending in renminbi (RMB).

We find that this recent decline in dollar-denominated lending by Chinese banks is outsized compared to that by other banks. Although Chinese bank incentives are opaque, we suggest two potential and complementary reasons for this difference: (1) Increasing U.S. and euro-area interest rates, which substantially raised funding costs in the two currencies most commonly used in cross-border lending (dollar and euro) and left Chinese banks in the unusual position of having one of the lowest-cost home currencies among major international banks and (2) a reported intensification, in the wake of the West's 2022 sanctions on Russia, of China's longstanding desire to de-dollarize international transactions.

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In response to their anxieties over the country’s financial insecurity and thestrategic imperatives spelled out by the top leader, Chinese policymakers have accelerated efforts to construct a parallel global financial architecture They have followed three main lines of action.

First, China has deepened regional and multilateral financial cooperation through non-Western platforms to diversify its financial partnerships. Second, it has promoted the international use of the renminbi in trade and investment, alongside the development of a renminbi-based financial infrastructure. Third, it is leveraging its industrial comparative advantage in green technologies and manufacturing to support the renminbi’s role in global commodity pricing, thereby advancing its internationalisation. Taken together, these efforts reflect a multi-faceted strategy to fortify China’s financial sovereignty and autonomy against external geopolitical shocks and to assert greater control over its economic security in an increasingly uncertain global environment.

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China is considering allowing the usage of yuan-backed stablecoins for the first time to boost wider adoption of its currency globally, sources familiar with the matter said, in a major reversal of its stance towards digital assets. The State Council - China's cabinet – will review and possibly approve a roadmap later this month for the greater usage of the currency globally, including catching up with a U.S. push on stablecoins, said the sources.

The plan is expected to include targets for usage of the Chinese currency in the global markets and outline the responsibilities of domestic regulators, they said, adding that the roadmap will also include guidelines for risk prevention. The country's senior leadership is also expected to meet for a study session as early as the end of this month, focusing on yuan internationalisation and stablecoins, which are gaining momentum worldwide, said one of the sources. In that meeting, senior leaders are likely to deliver remarks to set the tone for stablecoins and define the boundaries of its application and development in business, said the source.

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The world’s first offshore yuan-denominated tokenised public bond was issued in Hong Kong on Monday, in a deal seen as a milestone in the city’s ambition to become a digital finance hub. GF Securities (Hong Kong) Brokerage raised 500 million yuan (US$70 million) on behalf of Shenzhen Futian Investment Holdings, with the two-year bond carrying a 2.62 per cent coupon and an A- rating from Fitch.

The deal, executed on the Ethereum blockchain, has been listed on both the Shenzhen and Macau exchanges – the first time a tokenised security based on a public blockchain has been admitted to traditional bourses. Until now, most tokenised bonds in Hong Kong have been sold through private placements. By structuring it as a public offering, the issuance opens access to a wider pool of investors and provides a blueprint for integrating blockchain infrastructure into regulated capital markets. NVT, a Hong Kong start-up that provided the end-to-end technology for the issuance.

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The tokenised bond issuance comes as the Hong Kong Monetary Authority (HKMA) ushered in a new era of digital finance with its stablecoin ordinance last month, as the city seeks to balance innovation with oversight after a period of speculative fervour. As of August 31, 77 entities had expressed interest in applying for stablecoin licences, spanning banks, technology firms, securities houses, asset managers, e-commerce companies, payment providers, start-ups and Web3 enterprises, according to HKMA.

Meanwhile, the HKMA stressed that expressing interest does not imply approval and that only a few licences would be issued in the initial phase. It also reminded the public to remain vigilant against unlicensed stablecoin promotions.

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China-Led Bloc Agrees to Set Up Development Bank in Win for Xi​

• Chinese President Xi Jinping secured an agreement from partner countries to set up a new development bank, realizing a longtime ambition in a display of Beijing’s growing influence.
• The agreement marks a win for Beijing, which had sought to create such a bank since as early as 2010, and will give a strong boost to the infrastructure development and socioeconomic development in SCO countries.
• Xi also promised to increase investments and loans to partners, backing the bloc with financial support and further boosting Beijing’s clout, and member countries expressed opposition to unilateral coercive measures and vowed to facilitate trade within the group.

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