China is using loans agreed through its Belt and Road Initiative (BRI) to promote the yuan internationally, having already boosted the yuan's share of global payments to record levels.
During the Belt and Road Forum in Beijing that ended on
Wednesday, China's policy banks signed a series of yuan-denominated loan
contracts with foreign lenders.
Many of the 130 countries that attended the forum belonged
to the Global South, while most Western nations stayed away, and the presence
of Russia's President Vladimir Putin lent support to Chinese President Xi
Jinping's ambition for a new, multi-polar world order.
"You can see that the countries that are basically
using the RMB for trade settlements are mostly countries that have visited
Beijing or have come up with strategic agreements with
Geostrategic tensions and high U.S. interest rates have
helped Beijing increase the yuan's acceptability with some countries.
In September, the yuan - also called the RMB - accounted for
3.71% of global payments by value, hitting a record high, and almost doubling
from 1.91% in January, according to SWIFT data released on Wednesday. Still,
the yuan's share is negligible compared with the dollar's 46.6%.
Rising Sino-U.S. competition and the Russia-Ukraine war,
both pushed Beijing to persuade more countries to use yuan for settlement,
despite the currency's depreciation against the dollar.
And funding BRI projects has helped China revitalise the
once-stalled process of yuan internationalisation. It is 10 years since Xi
launched his signature BRI strategy, aimed at building global infrastructure
and energy networks connecting Asia with Africa and Europe.
"Amid rising currency volatility globally, the BRI
provides a good opportunity to expand the RMB's international clout,"
China International Capital Corp (CICC) wrote.
The China Development Bank, a state policy lender, signed
yuan-denominated loan contracts with Malaysia's Maybank, Egypt's central bank,
and BBVA Peru to support BRI projects.
Another policy bank, the Export-Import Bank of China, signed
a yuan-based loan agreement with Saudi National Bank, while Bank of China
helped Egypt issue Africa's first yuan-denominated Panda bonds.
Beijing also allocated an additional 80 billion yuan ($10.94
billion) to its Silk Road Fund for BRI projects.
A major driving force behind the rise in yuan financing has
been the sharp increase in U.S. interest rates.
As a result of the "increasingly high borrowing cost of
the dollar... many debtors have turned to the RMB for financing or
refinancing," Natixis economist Haoxin Mu said, while also citing
"the weaponisation of the dollar" in the wake of the Ukraine war as a
factor behind the increased use of the yuan.
Natixis' Garcia Herrero said the yuan is still a long way
from challenging the dollar's dominance, citing its tiny share in the oil
trade, and foreigners slashing holdings in Chinese stocks and bonds. She also
cautioned that a currency favoured by a bloc has less chance of being accepted
as a reserve currency.
"A reserve currency is never a currency of a group of
countries," Garcia Herrero said. "Can you do this in a targeted way
with MOUs with all BRI countries? Maybe. But it will not become a truly global
international currency." - Reuters
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