BEIJING: The Belt and Road Initiative (BRI) has fueled the yuan’s internationalisation, particularly in the past two to three years as work on related projects accelerated.
Pakistan is also among those countries that have opened the door to settling all bilateral trade with China in yuan instead of the United States (US) dollar. According to the State Bank of Pakistan (SBP) there is no bar to using the yuan to settle payments for trade and investment from China.
In Southeast Asia where economic relations with China are closer than in other countries and regions the yuan usage is getting popular, one expert told the Chinese Media House, the Global Times.
However, he said that relatively strict foreign exchange policies in many BRI markets, as well as insufficient branch network of domestic financial institutions in those markets, are restricting the yuan’s internationalisation in the short term.
“On the positive side, the growing pace of yuan use in BRI countries has been faster than the yuan’s overall usage in the world in recent years. The trend is particularly evident in some Southeast Asian countries like Singapore,” said Zhou Yu, the director of the Research Center of International Finance at the Shanghai Academy of Social Sciences.
The change is taking place very “naturally” as local companies gradually accept yuan settlement in their increasingly active business interaction with Chinese companies. This trend is also facilitated by rapid business expansion of Chinese banks in BRI countries, he said.
According to a statement the Bank of China, it has set up 12 offshore yuan-clearing banks, some of which are located in BRI countries like Malaysia. It is also helping local companies use the yuan for business settlement in countries along the routes of the BRI.
“As a Chinese company, we of course want to settle balances in yuan, which would help us avoid many exchange rate risks,” Fu said.
But Zhou cautioned that the strict foreign exchange policies in BRI countries, which are in general tighter compared with the developed countries, will hinder the yuan’s internationalization.
China’s State Administration of Foreign Exchange on April 22 published a report summarising the foreign exchange policies of 123 countries and regions that have signed BRI cooperation documents with China.
According to this report, those countries have different foreign exchange policies but most of them impose some level of restrictions, like cross-border capital flow controls, quota management programs and currency exchange limits.
In the long term, it is believed the yuan’s internationalisation will be an inevitable trend. It will also be a trend that not only benefits China but benefits BRI countries as many of those countries are also thirsty for foreign exchange,” the report added.