Once the RMB becomes the world’s third-largest currency, E-CNY will further promote the process of renminbi internationalization. Cross-border e-commerce payments could be the next key scenario for e-CNY use because it is “natural and particularly easy to accept”, said Tu Yonghong, deputy director of the International Monetary Institute (IMI). The currency is undergoing tests through trials.
Wei Benhua, former deputy director of the State Administration of Foreign Exchange, said that e-CNY will have an impact on the reform of the international monetary system once it is used in cross-border payments. It would also help promote the internationalization of the RMB. The People’s Bank of China has stressed active participation in international communications and exchange of the legal digital currency, Wei said.
The PBOC recently confirmed that it will explore pilot cross-border payment programs. It would also work with relevant central banks and monetary authorities in the rest of the world to set up exchange arrangements and regulatory cooperation mechanisms on the digital fiat currency.
According to IMI research, the RMB International Index (RII) rose to 5.02 by the end of last year from 0.02 a decade ago. The RII factors in aspects like pricing, settlement, and international reserves. The index rose by 54.2 percent in 2020.
The IMI research showed that the RMB’s international usage surpassed that of the Japanese yen and the British pound sterling in the first half of last year. This put the RMB behind only the US dollar and the euro for three consecutive quarters, including the last quarter of 2019.
A report based on the IMI research indicates that the internationalization level of the RMB is mainly determined by the share of the RMB in global trade settlements earlier.
Since 2015 the RMB has been increasingly used in cross-border financial transactions.
So, financial transactions are an important driving force for the Chinese currency’s internationalization. Overseas direct investments have promoted the RMB’s global usage more than bank lending and bonds, said Tu.
According to the RMB Tracker of the Society for Worldwide Interbank Financial Telecommunication (SWIFT), as of the end of June, the RMB has retained its position as the fifth most active currency for global payments by value, with a share of 2.46 percent. Overall, RMB payments value in June surged 65.51 percent over the level in May.
The SWIFT announced on Wednesday the launch of a new service called Swift Go, which enables small businesses and consumers to send cross-border payments directly from their respective bank accounts to “anywhere in the world”.
MYbank has also participated in the PBOC’s e-CNY trials, which opened its digital wallet service for users through an app on mobile phones.
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In the nation’s first white paper on introducing the e-CNY, the central bank said one of its goals is to keep pace with international initiatives as well as explore the improvement of cross-border payments.
The internationalization of a currency is a natural result of market selection. The international status of a country’s currency depends on its economic fundamentals and the depth, efficiency, and openness of its financial markets, experts said.
So, though technically ready for cross-border use, the e-CNY is still used mainly in domestic retail payment trials.
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