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MNI INTERVIEW2: China To Internationalise Yuan At Steady Pace

MNI (Beijing)

China will pursue steady internationalisation of the yuan due to concerns over FX stability and the limited value in holding trading partner currencies should expansion occur too rapidly, a policy advisor told MNI.

Zhang Ming, senior fellow and deputy director at the Institute of Finance and Banking at the Chinese Academy of Social Science, suggested CNY would experience a more moderate pace of internationalisation to limit trading partners exchanging it for U.S. dollars, which could add instability to offshore forex markets.

China signed the Johannesburg II Declaration at last month’s BRICS summit, which called on the group to consider closer financial cooperation, including trade in local currencies, payment instruments and platforms.

Zhang supported the BRICS declaration and the need for de-dollarisation, but warned trading in CNY also meant increasing holdings of various trading partner currencies, “many of which lack stability and liquidity which brings no benefit to China.” He said authorities should favour an approach built on market forces and existing infrastructure, similar to China’s Cross-Border Interbank Payment System (CIPS) and worldwide network of offshore clearinghouses.

Zhang noted the Panda bond market – yuan-denominated bonds issued by foreign entities on the mainland – could help drive CNY’s role internationally, despite its current comparatively small size.

Panda issuance reached CNY680 billion in H1 this year, up from CNY294 billion in H2 2022 and CNY511 billion in H1 2022. Analysts have noted foreign borrowers may wanted to raise CNY debt thanks to China’s low interest rates.

Zhang added China should also focus on organic growth using existing infrastructure, such as clearinghouses in Hong Kong and Singapore, “but also growing facilities in London and Paris.”


Zhang expects bulk commodity transactions priced in CNY to drive future progress, particularly oil and gas, alongside placement of high-grade CNY bonds with foreign investors in both on- and offshore markets. Increased CNY use among Belt and Road Initiative countries will also drive growth, he added.

Beijing has wanted to boost CNY as a global currency for years. CIPS recorded CNY523.29 billion worth of CNY transactions in Aug 2023, up 33% since January, while SWIFT data showed the currency’s share of global payments increased to 3.06% last month up from 1.91% in January. Despite China accounting for close to 20% of world GDP in 2022 and 14% of global exports, the yuan’s share of global currency reserves has remained limited. The IMF data ranks the currency as the fifth largest with 2.58% of assigned global reserves in Q1 2023.

Zhang hopes CNY could overtake the yen and sterling by 2035. “But catching up to the euro and USD is not possible in the foreseeable future,” Zhang said.

The policy advisor believes the Chinese economy will need further accommodative policy to maintain a potential growth rate between 5.5-6% over the next 10 years. (See MNI INTERVIEW:Support Needed To Boost Future China GDP-Advisor - Bonds & Currency News | Market News)

MNI Beijing Bureau |

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