The gradual internationalization of China's yuan

The debate about potential "de-dollarization" of the world economy necessarily asks whether the Chinese yuan will take on a greater role in global trade. We've taken a deep dive into the renminbi's "internationalization;" while the greenback will dominate international payments and reserves for the foreseeable future, China's currency is steadily taking on greater importance.

CEIC recently added China's currency internationalization index to our platform, as well as indicators such as the RMB's share of global and cross-border payments and reserves, over-the-counter FX transactions, interest-rate derivatives, debt issuance and currency swaps. These metrics let us holistically examine the yuan's role.

We first consider the internationalization index compiled by the People's Bank of China (PBOC) and compare it to proxy we calculated for a similar gauge from the Federal Reserve. In both cases, we see the yuan rising from a low base, the dollar dominating, and the euro in second place but fading gradually.

The two indices differ as to how much progress the RMB has made; unlike the Fed's measure, the PBOC index shows the yuan is outpacing the British pound and Japanese yen when it comes to internationalization -- roughly quadrupling over the course of a decade.

(Both indices are based on indicators ranging from international reserves to transactions and banking activity, though the PBOC and Fed will assign different weightings in their methodology.)

The second chart compares China to the US, UK, Eurozone and Japan -- illustrating the disconnect between economies' size and their currencies' internationalization (visualizing both the PBOC and Fed measures). China's economy has surpassed the Eurozone in size, but the RMB sees a fraction of the EUR's internationalization. The JPY, GBP and EUR see a greater share of international use than the UK, Japanese and Eurozone economies have of global GDP. Meanwhile, as the global reserve currency, the USD is in a league of its own.

To support internationalization, the Chinese government has established RMB clearing bank networks, signed bilateral trade agreements, and created the Cross-Border Interbank Payment System (CIPS) and currency- swap agreements.

Since its launch in 2015, CIPS has seen rapid growth in transaction volumes and values, especially after the imposition of financial sanctions on Russia in 2022, as our third chart shows.

And our subsequent charts explore more ways in which RMB-denominated assets have become more popular for international investors -- from the inclusion of Chinese bonds and equities in global indices to the use of the yuan in cross-border trade and over-the-counter FX trading. The yuan has become a more important trade settlement currency in Africa and Asia and particular, helping push RMB use in cross-border trade settlement to about 30%.

Our final chart explores a factor that has likely helped internationalize the yuan: the PBOC's interventions in the foreign-exchange market, which have effectively curbed RMB depreciation since 2023 by stabilizing the central parity rate.

This data story was inspired by the following academic analysis: von Beschwitz, Bastian (2024). "Internationalization of the Chinese renminbi: progress so far and outlook," FEDS Notes. Washington: Board of Governors of the Federal Reserve System, August 30, 2024, https://doi.org/10.17016/2380-7172.3592.

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