China's ambition to internationalize the yuan 5
As China’s yuan increasingly appears internationally, observers have suspected it will be the world’s next reserve currency.
According to Barron’s, China’s slowing economy is about to reach a point where America’s growing debt, low interest rates and weak currency will do more harm than good.
Therefore, China chose to gradually convince the world to use its money.
Recently, China has stepped up its strategy of internationalizing the yuan.
Since opening up in 1978, trade between China and other countries has increased significantly.
China wants its currency to be as widely used as the USD.
By 2004, China began allowing individuals to open accounts in RMB in Hong Kong (China).
In 2009, London was the next name.
Diplomat identifies London as an important bridge to enter European markets.
In 2009, China also tested RMB payments in international transactions in five major cities, including Shanghai, Guangzhou, Shenzhen, Zhuhai and Dongguan.
In June 2010, the pilot program was expanded to 20 provinces in China and the rest of the world.
Since 2010, the amount of circulating RMB capital in Hong Kong banks has increased quite sharply.
In 2011, China and Hong Kong launched the RQFII pilot program, allowing qualified foreign investors to invest in RMB in Chinese stocks and shares.
At the same time, the Chinese government allows direct investment abroad in RMB, loosens capital controls and strengthens the investment role of the RMB.
On CNTV, Mr. Yi Xianrong – researcher at the Institute of Financial Research of the Chinese Academy of Social Sciences commented that the process of internationalization of the RMB has significantly strengthened the payment role of this currency.
Since 2009, PBOC has signed bilateral currency swap agreements worth 3,000 billion yuan with 29 foreign monetary authorities.
In mid-November 2014, PBOC and the central banks of Qatar, Canada and Malaysia signed memorandums of understanding to cooperate in RMB payments and currency swaps.
Since 2013, China has also expanded RMB payments and RQFII services to the UK, Singapore, South Korea, France, Germany, Qatar, Canada, Luxembourg and Australia.
The Economist was impressed with the results China achieved in the process of internationalizing its currency.
According to the Global Payment Services Organization (SWIFT), in the middle of last year, the RMB surpassed the Swiss franc as the most commonly used currency in the international payment system.
In addition, in September 2013, China announced a draft plan to allow the RMB to be fully converted in the Shanghai Free Trade Zone (FTZ).
Recently, the Chinese Government announced that it would accelerate the internationalization of the RMB and turn it into an investment and reserve currency in the international monetary system, in order to realize the long-term goal of loosening management.
China also has the ambition to turn the RMB into a reserve currency.
Recently, there have been many predictions that by 2030, the RMB will probably rival the USD as one of the dominant currencies in the world market.
More importantly, the trend of changing global governance in developed countries is still unclear.
Therefore, China will have to accelerate the internationalization of the RMB, and strengthen the currency’s multi-tasking role in payments, investments and foreign reserves if it wants to strengthen its power in the global financial system.
