The internationalization of the Chinese yuan accelerated in 2020 despite the global pandemic and the U.S. government's containment of China's growth. The yuan internationalization index reached 5.02 at the end of 2020, a sharp increase of 54.2% from the previous year, making it No 3 among international currencies. The rate exceeded the internationalization levels of the yen and pound, according to the 2021 RMB Internationalization Report released by the International Monetary Institute (IMI) under Renmin University of China. The growth was mainly driven by the steady recovery of the Chinese economy, opening-up of the financial sector, stable monetary policy and stepped-up international currency cooperation, said the report. Since the Chinese authorities allowed yuan access to more foreign financial institutions, overseas investors are rushing to make inroads into China, seeking potentially higher returns, experts say.
After scrapping quota restrictions on investment via the Qualified Foreign Institutional Investor (QFII) and the yuan-denominated Renminbi Qualified Foreign Institutional Investor (RQFII) programs, Chinese financial regulators further lowered entry requirements and broadened the investment scope of these programs to facilitate foreign investment. In 2020, yuan-denominated financial assets held by overseas institutions and individuals surged 40.11% year-on-year to reach CNY8.98 trillion, according to the report. Meanwhile, the yuan's role as a reserve currency has also strengthened, with central banks of more than 70 countries having yuan reserve assets. As of the end of 2020, the currency accounted for 2.25% of global foreign exchange assets, an increase of 14.8% year-on-year, said the report.
Wang Fang, Deputy Dean of the School of Finance of Renmin University of China and Deputy Director of the IMI, said the establishment of the “dual circulation” new development model will provide a historic opportunity for taking the internationalization of the yuan to a new level. She said that the role of the Belt and Road Initiative (BRI) as well as offshore yuan transaction centers should be given full play in reinforcing domestic and international circulation in a bid to promote the global use of the yuan. Xi Junyang, Professor at the Shanghai University of Finance and Economics, told the Global Times that there is still great room for the international use of the yuan, especially in financial trading and as a global reserve asset. He called for further expanding the channels for foreign investors to enter the Chinese market and for domestic investors to issue yuan-denominated financial products overseas. “We may consider encouraging foreign investment in the Chinese capital market via the Shanghai-London Stock Connect program as well as potential connects with the Tokyo and Singapore stock exchanges.” But experts also said that big data technology should be adopted to step up supervision and early warning systems over the yuan's cross-border flows to prevent systemic risks, the Global Times reports.
