The Ambitions of the Renminbi and the Great Transformation of the Global Payment Landscape

"The dollar is doomed," "The rise of the renminbi"... When these slogans that have been repeatedly seen on the Chinese internet begin to be seriously discussed by more and more international financial institutions and media, we know that a game about money and power has entered a new chapter.

The stakes in this game are the dominance of the global payment system, and the players are the major currencies such as the dollar, the euro, and the renminbi.

The dollar, once the dominant force in the international financial world, is now facing a critical turning point.

On the one hand, it remains the world's most important reserve and payment currency, firmly occupying the central position in international trade and financial transactions; on the other hand, it is facing unprecedented challenges.

Advertisement

The declining share of payments, the acceleration of "de-dollarization" by emerging economies, coupled with the United States' own economic problems and policy mistakes, all cast a shadow over the future of the dollar.

The foundation of the dollar's hegemony is shaking.

In August 2024, the dollar's share in global payments fell to 49.07%, setting a historical low.It should be known that after the end of World War II, the US dollar, backed by strong economic power and the Bretton Woods system, once accounted for more than 70% of global foreign exchange reserves, almost becoming an indispensable "hard currency" in international trade.

However, since the collapse of the Bretton Woods system in the 1970s, the hegemonic status of the US dollar has gradually weakened, and it has accelerated in recent years. Although there are external factors such as changes in the global economic pattern and the rise of emerging economies, the more important reason may still be within the United States itself.

The structural problems of the US economy are becoming more and more obvious.

Huge trade and fiscal deficits, like two time bombs, are constantly eroding the credit foundation of the US dollar.

Since 1971, the scale of US national debt has soared from $400 billion to $35 trillion in 2024, with a growth rate that is astonishing.

Imagine a country that is almost unable to repay its own debt, how can it make other countries believe in the stability and reliability of its currency?

Moreover, the United States has abused its financial hegemony, often waving the stick of sanctions, which has also made many countries vigilant and seeking to "de-dollarize".

From freezing Russia's foreign exchange reserves to restricting Iran's oil exports, and then to implementing financial blockades on Venezuela, the United States' series of actions have not only harmed the interests of other countries but also seriously disrupted the international financial order and shaken countries' trust in the US dollar.

Of course, as the world's most important reserve and payment currency, the status of the US dollar is deeply rooted and difficult to replace in the short term.

As a big shot on Wall Street said, the decline of an empire often starts with internal problems.When the US dollar is no longer a symbol of reliability and safety, and when the wave of "de-dollarization" sweeps across the globe, how long can the foundation of the dollar's hegemony remain stable?

Challenging the dollar is a long and arduous task.

As the US dollar weakens, the euro seems to see hope in challenging the dominant position.

As the unified currency of the European Union, the world's second-largest economy, the euro has been highly anticipated since its inception and is seen as the currency most likely to challenge the position of the US dollar.

In recent years, the proportion of the euro in international payments has steadily increased, reaching a historical high of 21.58% in August 2024.

The rise of the euro is partly due to the overall recovery of the EU economy, and is also closely related to the relatively sound monetary policy of the European Central Bank. Global investors, in order to diversify risks, have also begun to invest more in euro assets, which further increases the market demand for the euro.

For the euro to truly shake the position of the US dollar, there is still a long way to go.

The eurozone is not a monolithic entity, with countries having significant differences in fiscal policies, economic structures, and other aspects, which to some extent limit the overall development potential of the eurozone.

It also faces a series of issues such as debt crises and aging, which could pose threats to the economic growth and financial stability of the eurozone.Finally, geopolitical risks also pose a significant challenge to the euro. After the outbreak of the Russia-Ukraine conflict, the European economy suffered a severe shock, and the euro exchange rate experienced substantial fluctuations. This indicates that the euro is still relatively vulnerable in dealing with external shocks.

In summary, although the euro has achieved certain successes in international payments, it also has some structural issues and external challenges. Whether it can seize the opportunity of the dollar's decline and ultimately challenge the dollar's hegemonic status remains to be seen.

The Rise of the Eastern Dragon

While the dollar and the euro are fiercely competing on the international stage, a force from the East is quietly emerging. The renminbi, once considered closed and backward, is now rapidly moving onto the international stage.

According to SWIFT data, in August 2024, the renminbi's share in global payments reached 4.69%, firmly holding the fourth place globally, surpassing the Japanese yen and becoming the largest international payment currency in Asia.

What is even more remarkable is that the renminbi has maintained this growth momentum for ten consecutive months, showing strong development resilience.

The rise of the renminbi is not accidental; it is the inevitable result of China's sustained high-speed economic growth, the vigorous development of foreign trade, and the continuous opening of financial markets.

In recent years, China has vigorously promoted the "Belt and Road" initiative, strengthening economic and trade cooperation with countries and regions along the route, creating great opportunities for the internationalization of the renminbi.

China also plays an active role in global financial governance, promoting the reform of the international monetary system and enhancing the international status of the renminbi.In 2015, China launched the Cross-Border Interbank Payment System (CIPS) with the aim of establishing a cross-border payment network centered around the Chinese yuan (RMB).

As of September 2024, the CIPS system has already had 152 direct participants and 1,412 indirect participants, covering 117 countries and regions worldwide, providing a secure, efficient, and convenient channel for RMB cross-border settlements.

The achievements of RMB internationalization are remarkable, but we must also be soberly aware that the path to RMB internationalization is still very long, facing many challenges and difficulties.

The degree of RMB internationalization is still not as high as that of the US dollar and the euro, and there is still a gap.

The proportion of RMB in international trade and financial transactions is still relatively low, and financial products and services priced in RMB are relatively lacking.

The degree of China's financial market opening is not high enough, and the capital account has not been fully opened, which to some extent restricts the willingness of foreign investors to hold and use RMB. The RMB exchange rate formation mechanism still needs to be further improved, to better balance the relationship between exchange rate stability and marketization, enhance the flexibility of the RMB exchange rate, and improve the attractiveness of RMB assets.

Looking forward to the future, global payment methods will become more diversified.

The US dollar is no longer the only dominant currency, and currencies such as the euro and the RMB will play a greater role internationally.

The "de-dollarization" trend is gaining momentum, and more and more countries are realizing that over-reliance on the US dollar carries great risks, so they are starting to find ways to reduce their dependence on the US dollar and use other currencies for transactions.In 2023, Saudi Arabia and Iran reached an agreement to settle oil transactions in Chinese Yuan, which is seen as a significant challenge to the "Petrodollar" system.

The rise of digital currencies has also brought new variables to the global payment landscape.

Central banks around the world are actively exploring digital currencies, hoping to gain an advantage in the future digital economy era.

China's digital Yuan is already at the forefront of the world, conducting pilots in multiple cities and actively exploring cross-border payment application scenarios.

The emergence of digital currencies will have a profound impact on the existing payment system and may even reshape the global currency landscape.

In this era full of transformation and challenges, China will continue to unswervingly promote the internationalization of the Yuan, contributing to the construction of a more fair, just, inclusive, and orderly international financial system.

The internationalization of the Yuan is not only beneficial to China but also to the stability and development of the world economy.

The author believes that

Some say that the best way to predict the future is to create it yourself.

The future of the global payment landscape is in the hands of every participant. Let's work together to create a more diverse and balanced international monetary system, injecting new momentum into the development of the world economy!