Progress and Achievements of the RMB Internationalization since the 18th...

Title:Progress and Achievements of the RMB Internationalization since the 18th National Congress of the CPC

Author:XIE Yaxuan and LUO Jiacheng

Renminbi internationalization is reflected by its overseas usage in payment，investment，financing，pricing and foreign exchange reserves. This journey first started from July 2009 with the launch of the Measures for the Administration of Pilot Renminbi Settlement in Cross-border Trade. In nearly ten years since put forward at the 18th National Congress of the CPC to “promote the convertibility of renminbi under capital accounts in due course”，the People’s Bank of China (PBC) and other sectors，under the unified arrangements of the Party Central Committee and the State Council，have clarified the direction of the course and promoted it in a steadily and prudent manner around the national strategic layout. During the decade，renminbi has expanded its influence from regional to global，and included payment，investment，financing，pricing，as well as foreign exchange reserves into its functions，making significant contribution in advancing China’s reform and opening up，as well as high-quality development of the real economy.

Main Progress during the Decade

Here，the authors illustrate the main progress and achievements of renminbi internationalization since the 18th National Congress of the CPC from the perspective of the four international roles of renminbi in payment，investment and financing，pricing and foreign exchange reserves.

Functioning as Payment Currency on the Basis of International Trade Promotion

Renminbi’s international role as a payment currency is established on the needs of international trade and the real economy development. China’s foreign trade volume has been rising steadily as a result of our unremitting efforts in promoting reform and opening up and engagement in economic globalization. In 2013，China became the largest trader of goods for the first time with a total import and export volume of US$4.16 trillion.

The policy framework of renminbi cross-border payment and settlement has been gradually improved. Renminbi Cross-Border Interbank Payment System (CIPS) is becoming increasingly crucial. The first phase of CIPS was put into operation in October 2015. By processing the remittance transactions of customers and financial institutions with real time gross settlement system (RTGS)，both efficiency and security were enhanced. In June 2018，the second phase of CIPS came onto stage to further improve the clearing and settlement efficiency of renminbi cross-border and offshore funds with a more liquidity-saving hybrid settlement method. In June 2022，CIPS launched the “lens service in payment” to further promote the efficiency and transparency of payment. As of June 2022，CIPS has attracted 1,341 participants，covering 106 countries and regions around the world. The role of renminbi as an international payment currency is conductive to both the development of real economy and financial stability.

Functioning as Investment and Financing Currency through Two-way Opening of the Capital Market

The two-way opening of the capital market reshaped the internationalization course of renminbi. Being the settlement currency in cross-border payment paved the early path for renminbi internationalization，yet it was insufficient to secure the international role of renminbi. In November 2013，it was pointed out at the Third Plenary Session of the 18th Central Committee of the CPC that it is necessary to “promote two-way opening of the capital market，improve the convertibility of cross-border capital and financial transactions in an orderly manner，and establish a sound foreign debt and capital flow management system under the macro-prudential framework to accelerate the pace in making renminbi convertible for capital accounts”. Since 2014，a number of cross-border interconnection mechanisms have been launched successively，including Renminbi Qualified Domestic Institutional Investors (RQDII) scheme，“Shanghai-Hong Kong Stock Connect” mechanism，and two-way cross-border renminbi cash pooling business for multi-national conglomerates，which opened up channels for cross-border renminbi investment.

Countries and regions along the “Belt and Road” have become important partners for cross-border renminbi investment and financing. Being rich in natural resources，board in market potentials and at the early stage of industrialization，countries and regions along the “Belt and road” are longing for huge capital investment to construct their infrastructure and develop their industries，making them new hot spots of China’s overseas direct investment. In December 2015，Asian Infrastructure Investment Bank was officially established. This latest cross-border investment and financing mechanism facilitated renminbi’s overseas usage，pushing it to play a larger role on the international stage. Since 2016，the value of foreign contracted projects newly signed by China’s enterprises in the “Belt and Road” countries and regions accounted for more than 50% of the total value of newly signed contracts in the same period. From 2015 to June 2022，the accumulative non-financial direct investments made by Chinese enterprises in these countries and regions has exceeded US$120 billion.

The new round financial market opening up since 2018 has injected new impetus into the internationalization of renminbi. According to the report of the 19th National Congress of the CPC，China will not close its door to the world but instead will open it wider. We accelerated the implementation of our new round financial market opening up measures since 2018. In terms of investment quotas，it was requested to fully eliminate the quota for Qualified Foreign Institutional Investors (QFII) and Renminbi Qualified Foreign Institutional Investors (RQFII) by September 2019. In terms of institution’s ownership ratio，foreign ownership caps have been gradually lifted or even abolished in the banking，securities and insurance sectors. In terms of the interconnection mechanism，“Swap Connect” and “Shanghai-London Stock Connect” were launched successively，“Shanghai-Hong Kong Stock Connect” and “Shenzhen-Hong Kong Stock Connect” mechanisms were also further optimized. In April 2021，CPC Central Committee and the State Council issued the Opinions on Building Pudong New Area into a Pioneer Area for Socialist Modernization Through High-Level Reform and Opening-Up，clearly proposed to build a domestic renminbi offshore financial system to offer overseas investors more channels to invest in the domestic market. The collateral development of onshore and offshore renminbi markets injects a new round of momentum into renminbi internationalization.

Renminbi has shifted its major functions from settlement and payment to investment and financing during the past decade. Of the cross-border renminbi receipts and payments，capital account amount and its proportion increased from 4.87 trillion yuan and 40 percent in 2015 to 21.61 trillion yuan and 76 percent in 2020. Specifically，direct investments under the capital account increased from 2.32 trillion yuan to 3.81 trillion yuan，from 2015 to 2020. Portfolio investments reached 16.50 trillion yuan in 202