Illustration: Tang Tengfei/GT
The yuan is accounting for a growing share of international payments. This mirrors a steady progress in the yuan’s internationalization, which helps diversify payment options, and gives the market more scope to adjust against the risk of dollar fluctuations, at a time when investors continue to firm up bets that US Federal Reserve rate cuts are coming soon.
Figures released on Thursday by international payments platform SWIFT showed the yuan’s share of global payments climbed to 4.74 percent in July, which means it remained the fourth-most active currency in payments for a ninth consecutive month, according to media reports. The yuan’s global share has almost doubled from November 2022, when it made up 2.37 percent of international payments.
There has been a steady stream of positive developments favoring the yuan’s international use. China’s economic fundamentals remain sound over the long term. Although the China-US interest rate spread is high, the yuan exchange rate has remained basically stable in complicated external circumstances.
Chinese officials have vowed to promote the internationalization of the yuan in a steady and prudent manner, with policies aiming to further open up its financial market to foreign players.
Efforts to promote the internationalization of the yuan and the diversification of the international payments system will improve the international currency balance and help maintain regional financial stability.
The global economy is fraught with uncertainty. US inflation fell to 2.9 percent in July. Many believe that if US economic indicators continue to come in about as expected, the US Federal Reserve is likely to begin cutting interest rates in September.
US monetary policy affects many economic and financial decisions people make in the US – whether to get a loan or put savings into a bank – and those decisions, as a whole, will generate spillover effects and affect the international market.
If the Fed changes its monetary policy stance, it will probably bring uncertainty and challenges to the international markets. Against this backdrop, Asian economies need to strengthen cooperation. Financial markets should be prepared for volatility. Amid rising uncertainties, the diversification of Asia’s payment system, with the yuan’s internationalization serving as an important part, will help strengthen the stability of Asia’s financial markets and trade settlements.
As US-originated financial risks, in particular, have resulted in excessive volatility in the currency markets and disrupted trade financing, the world’s long-term diversification of its payment system is inevitable. In this process, some Westerners are viewing the direction of diversification through a geopolitical lens.
They said that the yuan’s global payments gains were likely to be welcomed by the government, which is keen to increase the currency’s international profile as part of a broader drive to undercut the US dollar’s longtime dominance of global finance. This reflects a biased and distorted judgment about the internationalization of the yuan.
The US dollar has been the world’s principal reserve currency, and it is the most widely used currency for international trade. This situation won’t change soon. Some observers believe the current trend of de-dollarization will be an opportunity for the yuan’s rise, and hype the competition between the two currencies with ulterior motives. That is unnecessary.
China’s efforts to boost the international use of the yuan are based on the needs of China’s own economic development, and they are in line with the objective needs of regional and global development to contain financial risks, diversify the world’s payment system, and maintain financial stability.
China’s commitment to high-quality economic development and opening-up is bolstering the currency’s global stature. The internationalization of the yuan is a natural process driven by the market. As China’s foreign trade continues to expand, the yuan will be used more in international trade.
However, in recent years, the US has shown increasing signs of trying to weaponize its financial hegemony as a bargaining chip in geopolitical games. This is regrettable. This will inevitably accelerate the global de-dollarization process and raise awareness of the need to diversify global payment systems.
It is not China or any other country but the US itself that is facilitating the global de-dollarization push. The more the US uses its financial hegemony as a weapon, the more concerned the international community will be.
