In recent years, the Chinese government has worked hard to promote the internationalization of the renminbi. In 2015, the Cross-Border Inter-Bank Payments System (CIPS) was launched. Currently, 89 countries and regions have participated. In 2018, it handled 26 trillion yuan. In March 2018, yuan-denominated oil futures were launched. In May of the same year, China and the Eurasian Economic Union officially signed an economic and trade cooperation agreement, linking the Belt and Road Initiative with Eurasian areas. Is the renminbi an international currency now?
The fifth largest reserve currency
Although the United States accounts for only 10% and 15% of global trade and global GDP, half of the world’s trade invoices and two-thirds of the securities issuance are in US dollars. According to the International Monetary Fund data, as of the end of March 2019, the disclosed global reserve currency (accounting for 94% of the total global foreign exchange reserve assets), China’s RMB ranked fifth. However, the figure is still far lower than that of US dollar and euro. The rankings are shown as follows:
1. US dollar: 61.8%
2. Euro: 20.2%
3. JPY: 5.2%
4. Pound: 4.5%
5. Renminbi: 1.95%
6. Canadian dollar: 1.92%
7. AUD: 1.7%
8. Swiss franc: 0.15%
9. Other: 2.45%
RMB’s share as international payments currency ranked sixth
According to the SWIFT, as of the end of July 2019, the US dollar, the euro and the pound were among the top three international payments currency with 40.01%, 33.93% and 6.98% respectively. RMB is placed at sixth position in the global payment currency by value with a share of 1.81%(Figure 1). It is worth noting that Hong Kong accounts for three-quarters of the offshore RMB payments (Figure 2), highlighting the importance of Hong Kong to China.
Figure 1: international currency payments ranking
Image source: SWIFT
Figure 2: Hong Kong clearly dominates offshore RMB payment
Image source: SWIFT
There is still a long way for renminbi internationalization
Even though the renminbi has emerged in international finance, it still has a long way to go compared with other major currencies. As China and other emerging countries become more economically connected, the influence of the renminbi will be further enhanced.