Posted by China Magazine |Sep 8, 2021 |OPINIONS, TribunesIn an article published in People's Daily, Song Ke, deputy director of the International Monetary Institute of Renmin University of China, explained why the internationalization of the yuan is an inevitable trend when the Chinese economy develops.The RMB Internationalization Index (RII) hit its highest level in 5.5 years, according to a recent report by the news agency, Reuters.The yuan is expected to overtake the Japanese yen and British pound to become the 3rd most recognized international settlement currency by 2030, according to a Citibank forecast.In 2009, the People's Bank of China launched a pilot project for yuan settlement in cross-border trade, marking the beginning of the internationalization of the yuan.For more than a decade, the yuan has become increasingly market-oriented and internationally recognized, and has established itself as an important currency in international trade, financial transactions and official foreign exchange reserves.It has also played a vital role in facilitating trade and investment, innovative development of the financial sector, and serving the real economy.The RII has multiplied by 250 in ten years, going from 0.02 in the 1st quarter of 2010 to 5.02 in the 4th quarter of 2020, according to figures published by the International Monetary Institute of Renmin University of China.Although the IIR is still below the internationalization indices of the US dollar (51.27) and the euro (26.17), it has exceeded those of the yen (4.91) and the pound (4. 15) and ranked 3rd among major international currencies for 3 consecutive quarters.The overall level of internationalization of the yuan has steadily increased in recent years, despite the fact that China's capital account has not been fully opened up.The country has taken its first steps towards internationalizing its currency with Chinese characteristics, thanks to the achievements in the following areas.First, China's real economy, the cornerstone of its currency's internationalization, has maintained long-term "crisis-free growth", providing a solid foundation for RMB internationalization.When COVID-19 plunged the global economy into a deep recession and made the external environment extremely difficult, China was the first and only country to achieve positive growth among the world's major economies.Global investors therefore have greater confidence in the RMB and RMB financial assets.Second, China is still pursuing high-level opening up, allowing the RMB to gradually accomplish more functions in the world.The volume and share of RMB in cross-border trade settlement has been steadily rising.Regarding the use of RMB in financial transactions, outward direct investment and foreign direct investment using RMB are steadily increasing.The creation of an offshore RMB bond market continues.The opening of the capital market has accelerated.Breakthroughs have been made in the development of the financial derivatives market.RMB financial assets are appealing to global investors.With regard to world foreign exchange reserves, the RMB having entered the basket of special drawing rights (SDRs) of the International Monetary Fund (IMF), its amount in world foreign exchange reserves rose from 90.78 billion dollars in 2016 to $269.49 billion in 2020, recording growth for 10 consecutive quarters.Today, 75 countries and regions have included the yuan in their foreign exchange reserves.Third, China has constantly improved international cooperation and infrastructure to strengthen the use of the yuan.The proliferation of bilateral currency swap agreements and RMB clearing banks has facilitated the use of RMB abroad.Free trade zones across the country have expanded pilot areas for cross-border RMB transactions.In addition, the Guangdong-Hong Kong-Macao Greater Bay Area is strengthening the interconnection between financial markets in a coordinated manner, so as to gradually expand the cross-border use of RMB.China has made notable progress in building the RMB cross-border interbank payment system (CIPS), further facilitating the cross-border use of RMB.Today, the world economy is facing uncertainties, while the yuan has shown great stability, for 3 reasons:First, the Chinese economy has great resilience.Facing the sudden shocks caused by COVID-19 and the increasingly unfavorable external environment, the Chinese economy and society have shown great resilience.The country has not only made significant strategic progress in the fight against COVID-19, but also in the country's economic and social development while adapting to a long-term fight against COVID-19.Consequently, the real economy and foreign trade have all achieved positive growth, and the amount of foreign investment actually utilized has hit a new high, creating a favorable economic environment for the internationalization of the yuan.Then, the value of the RMB remained stable.COVID-19 has severely shaken the international financial market, aggravating panic among market participants.China has kept its monetary policy within normal ranges, and the RMB interest rate and exchange rate have remained relatively stable, while the central banks of major countries and regions have implemented ultra-loose monetary policies. and conducted unconventional countercyclical operations.Finally, China has continuously deepened international cooperation.The People's Bank of China has signed bilateral currency swap agreements with central banks or monetary authorities of more than 30 countries and regions since 2008, covering major developed and emerging economies as well as major offshore RMB markets.The bilateral currency swap facilitates trade and investment, guarantees the liquidity of RMB supply, and enhances the risk-resisting ability of RMB, so as to send a positive signal about RMB to the world and enhance confidence. foreign investors in the 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