By Bian Yongzu Source: China Daily Published: 2019-8-13
Use of the renminbi is an increasingly common choice of countries participating in the Belt and Road Initiative.
Some Western scholars misunderstand the China-proposed Belt and Road Initiative believing it is a means to promote the internationalization of the renminbi. In fact, although there is a certain relationship between the initiative and yuan's internationalization, they are two different issues.
The initiative proposed in 2013 aims to promote exchanges between China and the participating countries in the fields of trade and investment, infrastructure connectivity and the new industrialization, so as to realize common development and ensure the fruits of development are shared among all people.
The growth of China's economy and the continuous expansion of its foreign trade are accompanied by the internationalization of the renminbi. This process is mainly driven by market demand as the renminbi is more widely used for foreign trade settlement, financial transaction settlement and as part of the foreign exchange reserves of other countries.
Financial integration is an important premise and underpinning for implementing the initiative. To facilitate trade and investment growth, China and those participating countries have made joint efforts to continuously improve the Belt and Road's financial environment. Meanwhile, Chinese banks have quickened their pace to adopt international best practices.
So far, Chinese banks have set up a total of 102 branches in 24 countries including Singapore, Malaysia, Indonesia and Thailand. The renminbi cross-border payment system covers 40 participating countries such as Russia, Singapore, Malaysia, South Korea and Thailand. In addition, UnionPay card acceptance services have been established in over 50 participating countries. It can be said that the initiative has indeed made the Chinese currency become more and more widely used in trade and financial integration, which has in turn promoted the internationalization of the renminbi to a certain extent.
However, we cannot ignore the fact that the initiative has also promoted the bilateral exchange of other currencies such as the euro, ringgit and rouble among the Belt and Road Initiative countries, and a currency swap network has gradually taken shape. Also, it is worthwhile to notice that those countries prefer to use their own currencies rather than third-party ones in trade and investment exchanges in the current stage.
In addition, more participating countries are choosing the renminbi out of their own economic considerations.
First, in order to reduce the exchange rate risk, which is a major concern among participating countries. Whenever the US Federal Reserve adopts different monetary policies, it will cause large fluctuations in the capital markets of other countries.
Second, the Chinese renminbi as a currency for trading is increasingly recognized by international economic and trade events, and the yield of Chinese assets has been kept at a relatively high level. Holding renminbi can also obtain considerable asset appreciation. Meanwhile, as a rising powerful economy, China has the ability to provide credit guarantees to others. Given the fact, more and more domestic and foreign companies have given priority to the renminbi in trade pricing.
Third, China can offer financial support and then consolidate the material foundation for major projects in implementing the initiative. For instance, China boasts unique advantages in the fields of infrastructure, resource exploration and industrial upgrading cooperation. Through financing or direct investment of these projects, China can share its valuable experience in economic growth with other foreign countries, thus pushing forward bilateral economic cooperation, enhancing China's image among local people, tapping the potential of participating countries and giving full play to its endowment.
The latest data show that the renminbi has been accepted and recognized by a majority of countries in the world, as it has become China's second-largest cross-border payment currency, the world's fourth-largest payment currency, second-largest trade finance currency worldwide, and the sixth-largest international bank lending currency across the world. With the rise of China's international status and the strengthening of the renminbi's credibility, participating countries can consider the renminbi as the dominant or invisible reference standard, which is conducive to economic cooperation among those countries and maintaining regional financial stability.
China will not utilize the initiative to promote the internationalization of the renminbi. In the final analysis, the trajectory of the renminbi in its internationalization represents the common choice of countries participating in the Belt and Road Initiative and is fully supported by the growing economic and comprehensive strength of China.
The author is a research fellow of the Chongyang Institute for Financial Studies at Renmin University of China.