Chinese Yuan to Be the Asia-Pacific New Currency
China has outlined its strategic objective of enhancing the utilization of the yuan by leveraging regional trade agreements and offshore trading centres. Within the Regional Comprehensive Economic Partnership (RCEP), there has been a notable increase in yuan-denominated remittances, rising to 18.9% in 2022 from 7.1% in 2020. The Bank of China's report emphasizes the intention to further expand the cross-border utilization of the yuan within the RCEP, which includes ASEAN members, China, South Korea, New Zealand, Australia, and Japan.
The survey conducted by the Bank of China reveals that a substantial majority, exceeding 90% of both domestic and foreign companies firmly believe that adopting the yuan for cross-border payments can contribute to stability in the Asia-Pacific region during periods of liquidity constraints among major currencies. The appeal of yuan financing to international market participants has grown, driven by interest rate hikes by the US Federal Reserve and tightening dollar liquidity in 2022. Furthermore, 78.6% of overseas industrial and commercial enterprises express a strong inclination to select the yuan as a financing currency when international currencies face liquidity constraints, marking a significant increase compared to the previous year's survey results.
China exercises caution in expanding the global utilization of the yuan to maintain control over cross-border fund flows and manage the yuan exchange rate. Lu Lei, deputy director of the State Administration of Foreign Exchange, has pledged to create more application scenarios and increase the utilization of the yuan in regional agreements, highlighting the stability of China's economy and the prudence of its monetary policy as key driving factors for the gradual internationalization of the yuan.
China strategically pursues the objective of increasing the usage of the yuan through regional trade agreements and offshore trading centres. The RCEP plays a crucial role in facilitating yuan-denominated remittances, and there is strong confidence among both domestic and foreign companies in the yuan's capacity to foster stability in the Asia-Pacific region. China aims to diligently manage the internationalization of the yuan by enhancing facilitation for foreign investors, expanding trading channels, and encouraging foreign entities to hold the currency while effectively mitigating associated risks.