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China is stalling yuan internationalisation plans: RMB Tracker

The Yuan’s international usage dropped from 1.26% to 1.16% between November and December of 2020

The Digital Yuan, China’s treasured Central Bank Digital Currency (CBDC) project, has witnessed rapid advancement in the past couple of years. It is currently being tested by the Central Bank of China in four cities namely Shenzhen, Suzhou, Chengdu and Xunan.

It is no secret that one of the Digital Yuan’s major objectives is to aid in the fulfilment of China’s long-standing dream of internationalising the yuan. However, recent data from SWIFT’s Renminbi (RMB) tracker reveals that China’s progress towards internationalising its currency has been stalled in recent months.

RMB’s share as an international payments currency. Source: SWIFT

The data, released earlier this week, suggests that the yuan has only gained 0.02% in international usage between December 2018 and December 2020. Further, its usage saw a significant drop from 1.26% to 1.16% between November and December of 2020. It further revealed that the dollar has lost much more ground to euro than the yuan in the last two years.

While the gain is still prominent according to international financial standards, the number is nowhere close to what China has been achieving since it began the process towards internationalising the yuan after the global economic recession in 2008. The rash ban on Chinese companies and sanctions on CCP officials by the Trump administration is one of the likely causes for the drop.

Claude Barfield, who works on the US—China trade issues at AEI explained that China has been pulling out all stops to popularise the use of the yuan abroad. “The Chinese want to be not just important in terms of their domestic policy, but also in terms of their international policy. They don’t like that the dollar remains dominant in international trade”, the expert said.

The Digital Yuan is not only China’s next big step towards internationalising the yuan but it is also a means to hedge against the risks inherent to Dollar hegemony in the international monetary system.  The Digital Yuan presents the convenience of digital transactions for cross border payments with the credibility of the yuan, making it a lucrative option for China’s allies.

China is also expected to use its position as an important trading partner for several countries in the world to further the cause for the Digital Yuan. This has not gone unnoticed in the United States with the US intelligence publicly stating that they view the Chinese CBDC as a challenge to the dollar. However, it remains to be seen how much the reduction in pace towards yuan’s internationalisation affects the CBDC.

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