Argentina officially announced the settlement of the yuan, and a big change is taking place

For the foreseeable future, the renminbi's goal is not to replace the dollar, but to become an important pole in international monetary diversification.

On April 4, Argentina's Minister of Economy Massa announced at a press conference that Argentina will use RMB to settle its trade in Chinese imports, and Argentina's imports of US$26.4 billion worth of goods from China in April will be paid in RMB. In addition, goods worth US$10 million imported in May are expected to also be paid for in yuan.

Recently, in addition to Argentina, Brazil, Russia, Saudi Arabia, France and other countries have announced the use of RMB settlement, and the number of countries in the world that use RMB settlement has risen to 30. Why is the RMB so popular recently?

The weaponization of the dollar is a booster

Behind the recent popularity of the renminbi is the result of a combination of two factors.

The first driver is the smooth beginning of a restorative recovery of the Chinese economy, which has increased the international credit of the renminbi.

In the first quarter, China's GDP grew by 4.5% year-on-year, showing a rapid stabilization and recovery. International institutions have raised their expectations for China's economic growth. For example, the World Bank expects China's economy to grow by 5.1 percent this year, while the International Monetary Fund estimates 5.2 percent.

The second driver is China's recent initiative to increase the use of RMB settlements in cross-border trade.

According to Bloomberg, the yuan's share of China's cross-border trade rose to a record 3% in March, surpassing the US dollar (48% USD) for the first time. In 47, the use of the renminbi in China's cross-border trade was almost zero, and the US dollar accounted for 2010%.

It is certain that the introduction of RMB settlement in China's import trade in Argentina and other countries will further expand the proportion of RMB used in China's cross-border trade.

Looking back, the wave of de-dollarization that emerged last year has also become an important boost to the internationalization of the RMB. Its landmark events are twofold.

First, after the Russian-Ukrainian conflict, the United States expelled Russia from the Society for Worldwide Interbank Financial Communications (SWIFT) system and froze Russia's $6000 billion foreign exchange reserves, which shocked many countries.

In order to facilitate market operation, the foreign exchange reserves of many countries are deposited in the United States, and the foreign exchange reserves are allocated with a large amount of US debt, and US bonds can only be traded in the United States, which allows the United States to freeze the assets of other countries at will.

This move by the United States has caused many countries to consider changing the structure of foreign reserves. So far this year, at least 16 countries around the world have sold large amounts of U.S. Treasuries. In addition to China and Saudi Arabia, there are many traditional allies of the United States such as Germany, France, Israel and Japan.

Second, the dollar changed from large-scale water release to violent interest rate hikes, opening another cycle of using the "dollar tide" to harvest other countries' assets.

The impact of the dollar on countries with complete capital openness is that when the dollar cuts interest rates, a large number of dollars flow into countries with completely open capital to raise asset prices, and the United States reaps profits. After the violent appreciation of the dollar, a large number of dollars flowed back, causing the financial markets of capital-opening countries to collapse, asset prices plummeted, and the dollar returned to harvest cheap and high-quality assets.

As for producer and resource countries, they are usually countries that have the ability to obtain large amounts of dollars, and naturally they are also the target of the "dollar tide". It is not difficult to understand that most of the countries that have recently used RMB settlement are resource countries.

Say "no" to dollar hegemony

Some commentators believe that the rise of the de-dollarization wave and the popularity of the renminbi mean that the day will come to replace the dollar.

Historically, the dollar is indeed in decline. For example, in the 20s of the 80th century, the US dollar accounted for more than 80% of global payments, and according to the SWIFT system data in February this year, the US dollar accounted for 2.41%.

Although the trend of dollar decline is gradually emerging, deconstructing dollar hegemony is still a long-term process. The recent wave of de-dollarization is not precisely replacing the dollar, but collectively saying "no" to dollar hegemony.

With the growth of China's economy, the RMB has initially acquired a certain international status. Whether in terms of reserve currency or payment currency, the renminbi has jumped to the fifth place in the world.

In addition, by the end of 2021, China had signed bilateral local currency swap agreements with 40 countries and regions, with a total amount of more than 4 trillion yuan. Bilateral local currency swaps are an important part of activating RMB settlement.

In the foreseeable future, the renminbi's goal is not to replace the dollar, but to become an important pole in international monetary diversification.

Recently, the BRICS countries are discussing the establishment of the BRICS reserve currency R5, Malaysian Prime Minister Anwar has proposed the establishment of the "Asian Monetary Fund", and ASEAN countries have proposed to implement local currency settlement.

Under the actual conditions that the RMB is not freely convertible, promoting RMB settlement and promoting the establishment of a regional non-US monetary system is something that the RMB can do and can do well for a long time to come.

□ Xu Lifan (columnist)

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