China Accelerates Yuan Internationalization by Selling a Record $7.5 Billion in Offshore Bonds, Because Why Keep Your Money Under the Bed When You Can Have Yuan Worldwide
As the world struggles with the pandemic, China seems to have other plans, as Business Insider points out; they’re busy selling offshore bonds, setting a new record with $7.5 billion in sales. But why, you may ask? The answer is in China’s efforts to make the yuan, or renminbi, a globally adopted currency.
The Importance of Yuan Internationalization
Internationalizing a currency like the yuan has numerous benefits. Firstly it increases global trade and has the potential to reduce reliance on the US dollar, which is widely considered as the world’s reserve currency. Yuan internationalization enables enhanced financial market integration and creates opportunities for the currency to play a larger role in cross-border transactions, particularly in areas where the US dollar may not be the preferred medium of exchange.
China’s Record Offshore Bond Sales
China’s recent bond sales are part of an ongoing push to increase the attractiveness of yuan-denominated instruments to offshore investors. China has made significant efforts, including lowering entry barriers, opening up their domestic bond market, and introducing supportive regulatory measures to attract offshore investors to Chinese bonds. The high-speed rail of economic growth in China has already enticed investors, and the recent offshore bond sales make it clear that the market remains vibrant for the near future.
China’s Strategy for Spreading the Yuan
China is using strategic initiatives to push the yuan’s internationalization. The Belt and Road Initiative and the Asian Infrastructure Investment Bank are examples of this, and these initiatives require the use of yuan in financing transactions. The establishment of offshore yuan clearing centers also helps in promoting yuan usage and reducing transaction costs, while yuan-denominated settlement agreements with multiple countries enable direct transactions in yuan and bring convenience to global trading in the Chinese currency.
The Future of the Yuan
China’s bond sales initiative signals the durability and profitability of the yuan’s internationalization. The benefits of yuan internationalization are numerous, not just for China, but