Despite rapid advancement of a digital yuan, China’s progress in internationalizing its currency has stalled out in recent months.
Per data from SWIFT’s RMB Tracker released on Jan. 20, the Chinese yuan (CNY), also known as the Renminbi (RMB) had gained only .02% in international usage between December 2018 and last month. Meanwhile, it had fallen from 1.26% to 1.16% between November and December of 2020.
While not a catastrophe, it’s nowhere near the numbers that China has become used to since making the internationalization of the RMB a priority in 2009. An August report on the project from the People’s Bank of China remained optimistic, but a rash of bans on Chinese companies and sanctions on CCP officials near the end of the Trump administration may have spooked outside involvement. Over the past two years, however, the dollar has lost much more ground to the euro.
As a unit of international payment, the Chinese yuan fell between the Swiss Franc and the Hong Kong Dollar. Hong Kong, incidentally, is responsible for three-quarters of CNY settlement abroad. Feuds over Chinese human rights abuses in the special administrative region seem set to expand the trade war.
Per SWIFT’s data, the Chinese yuan actually declined from 2.07% to 1.88% of global payments, which should take into account intra-Chinese use of CNY. Those numbers are, however, based on SWIFT messaging. While SWIFT remains essential to China’s engagement with the outside world, the Bank of China has been pushing local financial institutions to move over to the country’s domestic alternative to SWIFT, the Cross-Border Interbank Payment System (CIPS).
It is no secret that China has been pulling out all the stops to increase Renminbi usage abroad. Claude Barfield, who works on U.S.-China trade issues at AEI:
“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.”
A major part of this battle is the Chinese central bank digital currency. U.S. intelligence has made it clear that it sees the digital yuan as a challenge to the dollar. China has, meanwhile, been accelerating pilot programs, distributing millions of dollars to of the digital yuan citizens via lottery.
While current digital yuan usage does not compare to the value that SWIFT processes, the advent of digital currencies has forced the network to up its game. Last month, SWIFT announced new instant cross-border payments.