Why China’s yuan adoption overseas remains sluggish despite CBDC’s effort

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Despite the rapid advance of the digital yuan, China’s progress in internationalizing its currency has stalled in recent months.

According to the data published by SWIFT’s RMB Tracker on 20 January, the Chinese yuan (CNY), also known as the Renminbi (RMB), had only gained 1.02 per cent in foreign use between December 2018 and last month. In the meantime, it declined from 1.26% to 1.16% between November and December 2020.

Source: SWIFT

Although not a disaster, the figures that China has used since making the internationalization of the RMB a priority in 2009 are nowhere close. The August report on the project by the People’s Bank of China appeared hopeful, but the rash of bans on Chinese firms and restrictions on CCP officials at the end of Trump’s administration could have scared outside participation. Over the last two years, though, the currency has lost even more to the pound.

As a foreign currency device, the Chinese yuan fell between the Swiss franc and the Hong Kong dollar. Hong Kong, by the way, is responsible for three quarters of CNY’s international settlement. Fears over Chinese human rights violations in the special administrative region look set to expand the trade war.

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According to SWIFT results, the Chinese yuan currently decreased from 2.07 per cent to 1.88 per cent of global transfers, which should take into account the intra-Chinese use of CNY. However, these figures are based on SWIFT texting. Although SWIFT remains important to China’s interaction with the outside world, the Bank of China has forced local financial institutions to shift to the country’s domestic alternative to SWIFT, the cross-border interbank payment mechanism (CIPS).

It is no secret that China has been taking out all the stops to expand the use of Renminbi abroad. Claude Barfield, who focuses on U.S.-China trade problems at AEI, said to Cointelegraph:

“The Chinese want to be not just important in terms of their domestic policy, but also in terms of their international policy. They don’t like that the dollar remains dominant in international trade.”

The Chinese central bank’s digital currency is a big part of this fight. U.S. intelligence has made it known that it sees the digital yuan as a dollar threat. Meanwhile, China has expanded pilot programs, providing millions of dollars to digital Yuan people through a lottery.

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Although current digital yuan use does not equate with the value that SWIFT processes, the introduction of digital currency has pressured the network to contend. SWIFT unveiled new instant cross-border transfers last month.

The SWIFT members did not respond to Cointelegraph’s request for comments at the time of publishing.

 

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