More countries "de-dollarized"! The renminbi surpassed the dollar for the first time in this transaction

China News Network, April 4 (Zhongxin Finance Gong Hongyu) China's cross-border transaction "de-dollarization" set a new record!

According to data recently released by China's State Administration of Foreign Exchange, the renminbi's share of foreign receipts and payments by Chinese banks rose from nearly zero in 2010 to a record 3% at the end of March this year, a thirteen-year high. The dollar's share fell from 48 per cent to 83 per cent over the same period.

"For the first time, the use of the renminbi in China's cross-border transactions has surpassed the dollar, which is another milestone in China's efforts to reduce its dependence on the dollar." Bloomberg reported on this.

Infographic: RMB and USD. Photo by Li Jinlei of Zhongxin Finance

The renminbi's international "circle of friends" is getting bigger and bigger

Since 2010, the US dollar has been the largest proportion of China's cross-border balance of payments. However, with the wave of "de-dollarization" in many countries around the world, and China's active promotion of bilateral trade settlement in RMB, reducing the use of US dollars is becoming a new atmosphere in China's cross-border transactions.

Since March this year, many countries have successively switched to RMB settlement. On April 3, Argentina's economy minister, Massa, announced that Argentina would stop using the U.S. dollar to pay for imports from China and instead use the renminbi for settlement. In early April, Malaysian Prime Minister Anwar said Bank Negara Malaysia had begun discussions with China to make trade between the two countries denominated in ringgit and renminbi.

Earlier, on March 3, the Brazilian government said that Brazil and China reached an agreement to no longer use the US dollar as an intermediate currency, but to use the local currency for trade. On March 29, CNOOC and French company Total Energies completed the first domestic purchase transaction of imported liquefied natural gas (LNG) settled in RMB through the Shanghai Oil and Gas Trading Center platform.

In fact, up to now, more than 30 countries, including Indonesia, Iran, Russia and Germany, are gradually switching to the use of RMB in trade settlement or investment. The international circle of friends of the RMB is getting bigger and bigger, and the recognition of the RMB in the world, especially in emerging economies, has increased significantly.

Why is the RMB "hot"?

"The increased use of the renminbi is a natural consequence of China's opening of its capital account, and bond flows into Chinese mainland and out of Hong Kong are increasing." Zhixuan Zhao, chief Asian FX and interest rate strategist at Bloomberg Industry Research, wrote in a briefing.

Economist at DBS Bank (Hong Kong) Leung Shau Kee told Bloomberg that the internationalization of the renminbi is accelerating as other countries seek an alternative payment currency to diversify risk, and the Fed's credibility is not as good as before.

At present, many countries around the world have set off a wave of "de-dollarization". Chen Wenling, chief economist of the China Center for International Economic Exchanges, told the media that behind the "de-dollarization" is distrust of the United States and the dollar. This is both because they question the credibility of the United States and are dissatisfied with the hegemony of the dollar, but also a helpless move with a safe-haven component. The US dollar has now become a major source of instability and uncertainty in the world economy.

"In the Ukraine crisis, the United States united with many countries to sanction Russia, which affected Russia's export trade, and countries around the world saw the hegemonic behavior of the dollar." De-dollarization' and currency diversification are the general trend. Yang Delong, chief economist and fund manager of Qianhai Open Source Fund, previously told Zhongxin Finance.

Infographic: RMB. Photo by Zhongxin Finance Gong Hongyu

What is the significance of exceeding the US dollar in cross-border transactions?

"The use of RMB in foreign receipts and payments by banks exceeds that of US dollars, indicating that cross-border transactions in China have gradually become dominated by local currency." Wang Youxin, senior researcher at the Bank of China Research Institute, mentioned.

Wang Chunying, deputy director and spokesperson of the State Administration of Foreign Exchange, said at a press conference on April 4 that the rising proportion of the renminbi in cross-border use will help reduce the risk of currency mismatch in cross-border transactions.

"In the past, third-party currencies were mainly used for pricing and settlement in China's foreign trade, which not only increased the foreign currency risk exposure and exchange rate risk of enterprises, but also increased the difficulty of managing and operating national foreign exchange reserves, and increased the risk of cross-border capital flow fluctuations." Wang Youxin said.

In Wang Youxin's view, after the gradual promotion of local currency settlement, the exchange risk of enterprises will be significantly reduced, the risk of currency mismatch between assets and liabilities in production and operation will be significantly reduced, and enterprises can put more resources and energy into their main business. The volatility of cross-border flows of foreign currencies will be reduced, the demand for RMB liquidity and asset allocation will increase, the stability of exchange rates will be improved, and RMB assets will be favored by more international investors.

In addition, Wang Youxin mentioned that the increased use of RMB in bilateral trade will play a demonstration driving effect for other economies and market participants, and cross-border RMB settlement will be promoted in more scenarios and more countries in the future.

In April, China's State Council issued the Opinions on Promoting the Stable Scale and Optimal Structure of Foreign Trade, which mentioned that financial institutions should be encouraged to innovate and improve foreign exchange derivatives and cross-border RMB business, and further expand the scale of cross-border trade RMB settlement.

Yang Delong believes that the further internationalization of the RMB will change the state of "one currency dominance" of the US dollar to a certain extent, weaken the power of the United States to manipulate the global currency market, and benefit the long-term development of non-American parents. (End)