I don't know, I'm not an SME in finance.
Renminbi (RMB)/Yuan Appreciation & Internationalization
- Thread starter supercat
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I think the fundamental assumption that they're trying to "internationalize" the RMB is probably false. They're trying to encourage rebalancing of global currency reserves and currency selection for trade settlement so that it somewhat reflects each countries' share of global trade. By definition that will weaken the US and strengthen China, but it will also strengthen most other countries.
From what I understand, there is a lot of structural reasons why the USD remains dominant and why it will likely continue to do so for some time to come. These countries can talk about wanting to replace the USD as the dominant trade and reserve currency, but they need to make structural changes to their own financial institutions and currency policies to make them competitive with the way the USD works. Otherwise, people will continue to find the USD a more attractive option and a safe haven for assets.
Spending USD holdings in China means exchanging them for RMB. This causes rapid appreciation of the currency. The only way to avoid this is printing RMB and spending it abroad, essentially moving the money from outside to inside China and then back out. Then we're back to the question of what to do with it
Structural matters in a sense of traditions and habits of international market participants around the world to use the dollar. It is not a matter of policy, but the matter of time. You can't replace 80 years of habits and traditions overnight, no matter what policy you bring in. You can only do that with time. Chinese policy and statements and actions were already clear enough, same from other countries in the Global South. The only things lacking now is time.
Chinese Central Bank already made statements that it will push the yuan internalization, that means that it won't artificially devalue the yuan in the future anymore.
I think that last yuan manipulation from the CB was in 2015, and from then, it stopped. Clearly because even then China realized that it will have to internationalize the yuan to fight the US hegemony and for that it needed to stop the devaluation first and be more open and clear in general. Maybe because the first Western financial sanctions against Russia were in 2014.
Yuan was also included in IMF SDR basket in 2016. That is also showing a clear sign of internalization pursuit.
Nowadays there are more and more green lights from CB for offshore yuan clearing and settlement services for more bilateral trade happening in yuan. There are also bilateral trade agreements that go together and drive that process of course. There are also currency swaps with other central banks around the world in the end.
China's commercial banks already started giving BRI loans in yuan, there are already yuan issued bonds abroad and opening of Chinese domestic yuan bond market too.
I'm not an expert, but I think the policy of China is clear enough, the only thing lacking now is time and more demand for yuan abroad, and then more yuan financial infrastructure will follow over the years ahead while demands also goes up.
Nowadays, I'm only not sure if it will be yuanization without appreciation or without it. If China wants to push the yuan abroad without it appreciating, then maybe they could simply print more currency with the demand going up to keep in the equilibrium. And since China, as a state, control its largest banks, it could be possible with some clever managment, its Central Bank and gigant commercials banks working together.
Generally, it is impossible to significantly internationalize one currency, without it strengthening as a product of that too, however, since China as a state controls its largest banks, maybe its possible with some new tactics. Or maybe with more creative usages of those already existing monetary tactics.
I think that last yuan manipulation from the CB was in 2015, and from then, it stopped. Clearly because even then China realized that it will have to internationalize the yuan to fight the US hegemony and for that it needed to stop the devaluation first and be more open and clear in general. Maybe because the first Western financial sanctions against Russia were in 2014.
Yuan was also included in IMF SDR basket in 2016. That is also showing a clear sign of internalization pursuit.
Nowadays there are more and more green lights from CB for offshore yuan clearing and settlement services for more bilateral trade happening in yuan. There are also bilateral trade agreements that go together and drive that process of course. There are also currency swaps with other central banks around the world in the end.
China's commercial banks already started giving BRI loans in yuan, there are already yuan issued bonds abroad and opening of Chinese domestic yuan bond market too.
I'm not an expert, but I think the policy of China is clear enough, the only thing lacking now is time and more demand for yuan abroad, and then more yuan financial infrastructure will follow over the years ahead while demands also goes up.
Nowadays, I'm only not sure if it will be yuanization without appreciation or without it. If China wants to push the yuan abroad without it appreciating, then maybe they could simply print more currency with the demand going up to keep in the equilibrium. And since China, as a state, control its largest banks, it could be possible with some clever managment, its Central Bank and gigant commercials banks working together.
Generally, it is impossible to significantly internationalize one currency, without it strengthening as a product of that too, however, since China as a state controls its largest banks, maybe its possible with some new tactics. Or maybe with more creative usages of those already existing monetary tactics.
Thanks to @olalavn for tweeting this out
But this is a great sign for Bangladesh to be paying remaining $318M to Russia in RMB
But this is a great sign for Bangladesh to be paying remaining $318M to Russia in RMB
And using CIPS, so this probably won't even be captured in those SWIFT payment reports
So it seems to me that China just needs to get more countries on CIPS and to have Yuan clearing and currency swaps and such.
I don't think so. A more transport system can attract more countries/banks to use the system
good article here because it's based on what Yi actually said, I would imagine. Basically, China is more or less allowing market to set the exchange rate. It is not entirely free floating, but also not managed like many other countries. And he mentioned that they are basically not doing FX interventions right now. That's probably true, but most central banks do from time to time come in and defend their currencies.
I don't see a point in that kind of transparency. Relevant parties involved in a particular transaction know what they need to know about their transaction. It's no one else's business. Many who use CIPS are under the US/Western sanctions and/or want to evade their monitoring, which is a major merit of using CIPS. Disclosing data based on which the US/West can estimate/track trade status/volume and money flow could put participating parties at risk. Participating parties might be uncomfortable about their economic activities getting attention.
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