Yuan global currency
The implementation of the fourteenth Five-year Plan (2021-2025) through which China decides future economic and political strategies is approved on the occasion of the "Two Sessions" of the Chinese People's Political Consultative Conference and by the "National People's Congress” held in March 2021 .
The key issues include sustainable development, the dual-circulation strategy, promoting internal consumption and the Belt and Road initiative, attention to the environment, technological innovation, security and the role of the Chinese currency. In relation to the yuan, the “Two Sessions” confirms the objective relative to the internationalization of the RMB, through weighted measures that aim to spread the Chinese currency on foreign markets.
China has been awarded the role of second largest economy after overtaking Japan in 2010 and, consequently, the United States, in terms of GDP at purchasing power parity, in 2018. In 2019 it was confirmed as the first economy in terms of trade and export volume while in 2020 Beijing has overtaken Washington as a foreign investment destination. The economic acceleration is also accompanied by a greater role of the national currency: the yuan (CNY / RMB) or "People's Currency".
In 2020 China trade in goods accounted for 4.646 billion and, even though the pandemic outbreak, the total volume of trade increases by 1.5% securing the country the role of first global trading economy, this leads the currency to increase its influence, although it is not fully convertible and negotiable on the markets.
Since 2016, the International Monetary Fund has included the CNY in its basket, further accelerating the spread of the Chinese currency. China has pegged the yuan to the dollar in an adjustable way. This floating peg has seen a downward trend, implying that the yuan has depreciated against the dollar, making Chinese exports relatively more competitive against dollar prices around the world.
Among the strategies through which Beijing promotes the global circulation of its currency is the new Silk Road, with infrastructure projects aiming to an increase of the trade flow from China to the rest of the world. The Belt and Road initiative has among its lenders the Silk Road Fund and the Asian Infrastructure Investment Bank (AIIB) with projects that include the use of RMB in many regions.
Beijing first tested the use of its own currency in Southeast Asian markets and hypothesized with the African Union its use in the entire continent.
In the domestic market, China has promoted the creation of 12 Free Trade Zones, from Hainan Island to the Lingang district, in the municipality of Shanghai; these Free Trade Zones serve to test new fiscal and financial reforms including more efficient ways of converting and using foreign currency. The best known among the special administration regions of the People's Republic of China, is Hong Kong, which has always represented a robust pillar among the financial markets of the world and in addition to the stock exchange, it counts on one of the major ports for exchanges and on the most widely used hub for investments to and from mainland China.
European countries have helped promoting the development of the largest yuan market outside Hong Kong since they comprehended the trade benefits of an increasing use of the Chinese currency. In recent years, an average of 40% of global yuan transactions have been authorized in Europe. The central role of the old continent in economic relations with China is witnessed by the special agreements in the 17 + 1 association, which includes the Central-Eastern European countries under the coordination of Beijing, by the Comprehensive Agreement on Investments, confirmed in December 2020, and by the number of countries that have joined the Belt and Road Initiative (including Italy, Luxembourg, Austria, Greece, Hungary).
Despite the increase in global use, the yuan is still limited by restrictions on capital flows and currency control typical of the country. Therefore, the US dollar remains the reference currency and many Chinese projects are carried out in USD but the growing trend of investments towards China still promotes a greater use of the RMB. In fact, in 2020, Beijing surpassed the US in the number of Foreign Direct Investments and signed the largest free trade agreement in the world; with the Regional Comprehensive Economic Partnership, China enhances its role in trade and finance in the world market.