China’s RMB Goes Global

Easy RMB Transaction

All this was not very reassuring to foreign nationals using RMB. Mark is an American scholar who periodically attends seminars in China and visits Chinese colleges and universities as a guest lecturer. When he first travelled to this country 20 years ago, he took US dollars with him to change into RMB in the Bank of China. When he left, he exchanged all his remaining RMB into dollars because he would not be able to spend or exchange it in America, and he thought it was risky to deposit RMB.

“Now I don’t need to worry,” said Mark, brandishing his Union Pay card. Recently Mark has been working more closely with Chinese institutes of higher education, and he even prefers to be paid in RMB. He saves his salary in a Bank of China account and uses it whenever he visits China. “If I do take RMB back to America, it is not difficult to change it into dollars,” he said. “Besides, many stores in the U.S. now accept Union Pay.”

RMB payments have become more prevalent in international business. At Yiwu wholesale markets, a growing number of businesses are using RMB to settle accounts in deals with foreign merchants. Some directly use RMB to settle accounts in other foreign currencies, other than the US Dollar, such as the Russian rouble, which not only avoids exchange rate losses, but also cuts out the uncertainty of exchange fluctuations.

The Bank of China holds its launch ceremony in Paris on December 3, 2014 as a clearing bank for RMB business.

Take Volkswagen as an example: The majority of its transactions are conducted in euros, but the second largest number of transactions are made in RMB, which highlights the importance of the Chinese market and bilateral trade between Germany and China. According to Volkswagen China’s Public Relations Department, China is Volkswagen’s most significant market. In 2014, Volkswagen sold 3.7 million vehicles in China, which were all paid for in RMB.

Jaguar’s sales volume in China just keeps increasing. The British car manufacturer also embarked on a joint venture project with China’s Chery Automobile. Transactions using RMB have become an important feature of Jaguar’s corporate finance. According to Ben Burger Pauer, finance supervisor for Jaguar, the RMB is as important as other major currencies. “We use RMB for settlement, equity contribution, participation in profit, hedging, and cash investment. Actually in London, we already use RMB to manage almost everything we need to do.”

The Story of Internationalization

The internationalization of the RMB means greater convenience and benefits for Chinese spenders on overseas consumption, shopping and investment. In spite of this remarkable achievement, internationalization is still in its primary phase. Most organizations that use the RMB have close ties with China – very few are outside the bilateral link.

The inclusion of the RMB in the SDR basket has presented both opportunities and challenges. The weight of China’s influence and voice in international financial organizations relies on the stable and healthy development of its economy over the coming years.

According to Guo Tianyong, director of the Chinese Banking Industry Research Center at the Central University of Finance and Economics: “China has some problems with the RMB interest rate and controlling the exchange rate risk. The sluggish global economy, especially the devaluation pressure facing RMB, makes internationalization more difficult. Therefore, it is necessary to deepen domestic financial reform and improve the marketization of factor prices.”

As part of the SDR, the door of international reserve currency is now open to the RMB. However, there is a long way to go before this now eligible currency is universally well-received.

Chai Yifei is a reporter with People’s Daily (Overseas Edition).