Overseas use of the Chinese yuan grew significantly last year due to its pivotal role in global supply chains and continuous high-quality economic development, according to a new study by Renmin University. The yuan internationalization index, which aims to track how the Chinese currency performs globally, showed year-on-year growth of 22.9% in 2023. “As the quality of a country’s financial system rises in the process of servicing global supply chains, the foundation for using its currency will be cemented,” the report stated. “The yuan’s internationalization was still robust when compared to other key currencies, even though China’s trade with other countries was suppressed amid a difficult external environment.” China has been trying to increase the global use of the yuan as the country improves management and risk prevention in cross-border capital flows. The report gave an average internationalization score of 6.27 for the yuan last year, while the U.S. dollar stood at 51.52 in the same period and the euro earned a 25.03 on the index. A higher score reflects a higher degree of internationalization, but the study did not say what the maximum score is.
The yuan ranked higher on the index than the British pound and Japanese yen, which scored 3.76 and 4.4 respectively. Renmin University researchers started the index in 2012. They collated data related to the yuan’s settlement in trade, financial transactions and use as an official reserve currency in other countries to determine the currency’s internationalization level. Tu Xinquan, Professor and Dean of the China Institute for WTO Studies at the University of International Business and Economics, wrote in May that Beijing’s continuous efforts to optimize cross-border trade settlements would help push the yuan’s internationalization. “Cross-border financial settlement platforms established by various provinces have effectively attracted many financial institutions, improving the efficiency of corporate payments and receipts, expanding investment and financing channels, and advancing the internationalization of the yuan,” he added. Despite the rising momentum, the Renmin University report warned that the yuan’s internationalization faced challenges ahead, including pressures from the Chinese economy, persistent geopolitical risks, a relatively low rate of return for yuan assets, and the Chinese currency’s relatively weak exchange rate against the U.S. dollar.
“Blockchains and big data technology should be used for stabilizing and protecting supply chains from risks,” the report said. “The service quality should be improved for partners in the Cross-border Interbank Payment System, while more support should be given to trade activities under the Belt and Road Initiative and the Regional Comprehensive Economic Partnership (RCEP),” the South China Morning Post reports.
