China’s yuan, also known as the renminbi, is favored by more and more countries. The renminbi has become one of the five most widely used currencies in global payments and the most active currency used in Asia for transactions with the Chinese mainland and Hong Kong, according a report published by the Society for Worldwide Interbank Financial Telecommunication (SWIFT). Experts point out that the development of the “One Belt, One Road” initiative will contribute to the internationalization of the currency. 

The renminbi has been increasingly popular in global trade in recent years. It has become the world’s 5th biggest payment currency after the US dollar, the Euro, British pound sterling, and Japanese yen, taking a market share of 2.07 percent in April, slightly higher than the 2.03 percent in March.

China’s neighbors including Philippines, Malaysia, Indonesia, Singapore, Laos, Myanmar, and Russia, are using the renminbi with growing frequency. According to SWIFT, the value in weight of the RMB used for payments exchanged with China’s mainland and Hong Kong within Asian- Pacific region increased by 327 percent between April 2012 and April 2015. The Chinese currency moved from position number five to the top currency used in the region to do business with China’s mainland and Hong Kong over the course of these three years. The internationalization of the renminbi is inevitable, says Caroline Owen, Regional Head of RMB Solutions, Standard Chartered Bank.

China’s fast economic growth helps increase its global standing. The stronger renminbi in the Pacific-Asia region and in the wider world is attributed to China’s sound economic development, the further opening-up of its capital account, and the increasing outward flow of foreign direct investment. The market is upbeat about the trend of renminbi development.

In an effort to promote the internationalization of the renminbi, the Chinese government has set up a renminbi offshore market, signed currency swap agreements with 28 foreign central banks, and simplified the cross-border RMB settlement process, says Pieter P. Bottelier, Senior Adjunct Professor of China Studies at the Johns Hopkins University.

Experts also point out that the renminbi is transiting from a means of settlement payment to an investment currency. The Shanghai-Hong Kong Stock Connect enables overseas investors to use Renminbi to trade Shanghai-listed A shares. The forthcoming Shenzhen-Hong Kong Stock connect will further the internationalization process.

Statistics show that more than 30 foreign central banks have bought RMB bonds issued in China. The People’s Bank of China has signed currency swap agreement totaling 424 billion US dollars with more than 20 foreign central banks. Offshore renminbi markets have been established in the Asia-Pacific and in Europe. 

The internationalization process is a lengthy one. There are three phrases for the internationalization of a currency, according to Pei Sai Fan, associate professor of Singapore Management University: the first is to become an international payment currency; the second is to become an investment currency; the third is become reserve currency. China is still transiting the first phrase as to the internationalization of its currency.

The “One Belt, One Road” initiative is helping to speed up internationalization. With strengthening trade ties between China and the countries along the “One Belt One Road”, the latter are more likely to use the renminbi as a payment currency.

According to Chen Yulu, professor of Renmin University of China and member of the central bank's Monetary Policy Committee, the countries along the “One Belt One Road” are likely to become a renminbi currency area, with growing bulk commodity trade, financing of infrastructure, construction of industrial parks, development of cross-border e-commerce, and the foundation of the Asian Infrastructure Investment Bank. But some experts warn that the internationalization of the renminbi should first meet the demands of the real economy in promoting the initiative.

This article was edited and translated from 《人民币跃升亚洲支付头把交椅》, source: People's Daily Overseas Edition, Author:Luo Lan