BRI and RMB Internationalization

Since 2003, RMB internationalization has been advancing amid twists and turns, but the proportion of the RMB in global foreign exchange reserves is still lower than China’s share in the global economy and trade. We believe the root cause is that the RMB has not yet completed a closed loop of cross-border investment and financing. Specifically, the internationalization of a currency entails the expansion of its monetary functions through three basic measures: A medium of exchange, a store of value, and a unit of account. Compared with its function as a medium of exchange, the RMB’s development as a store of value and a unit of account has lagged, and the relatively unbalanced development of these three functions of the RMB has imposed constraints on the process of its internationalization. However, the international monetary system is now moving towards a higher degree of diversification. This requires the RMB to play a greater role in global financial and trade scenarios, in our view. The BRI provides a good opportunity for RMB internationalization, and the formation of a closed loop for the smooth and convenient circulation of the RMB in turn facilitates the healthy interaction between the BRI economy and RMB internationalization. We believe the BRI provides an opportunity to expand the influence of the RMB. First, China has advantages in trade over BRI countries as a whole, with their trade being highly complementary and conducive to further promoting the functions of the RMB as a unit of account and a medium of exchange. Second, the financial markets of most BRI countries are less developed than that of China, which has opened its capital account to a certain extent, helping to improve the functions of the RMB as a store of value. Therefore, the BRI can contribute to developing the three major functions of the RMB and creating a closed loop of RMB investment and financing, in our opinion. In addition, the formation of a closed loop of smooth circulation of the RMB can also facilitate investment, financing, and trade cooperation among BRI countries, and facilitate the high-quality development of the BRI. Against the background of changes in the global landscape driven by de-dollarization and de-globalization, and drawing on the German and Japanese experience in currency internationalization, we believe China can give full play to its advantages in economic size and trade volume. First, it can seek breakthroughs in promoting the use of the RMB as a settlement currency and an invoicing currency for cross-border trade with BRI countries. On this basis, it can promote the use of the RMB as a store of value by driving the development and opening up of China’s financial markets, launching more RMB-denominated products and building a closed loop of RMB investment and financing. We believe the signing of bilateral currency swap agreements could help promote the use of the RMB as a settlement currency, the development of RMB-denominated commodity products could expand the use of the RMB as an invoicing currency, and the development of foreign exchange markets is likely to strengthen the use of the RMB as a store of value. We believe these three measures will play important roles in promoting the internationalization of the RMB in BRI countries.