Surging international use of the renminbi to clear trade payments has not had a supportive impact on the currency. In fact, it has had quite the opposite effect.
Since last year, Russia has adopted RMB for payments with non-Chinese third parties as a means to bypass Western sanctions. Elsewhere, countries such as Saudi Arabia and Brazil have also agreed to begin using the redback to clear payments for their oil and agricultural product trades with China.
But despite the growing number of sovereign entities and other institutions using RMB as a settlement currency, the redback still has a long way to go to become a genuine store of value.
Overseas, it exists mainly in the form of interbank liquidity, not in the form of bank deposits. And herein lies a problem for the People’s Bank of China – as well as an opportunity for Hong Kong and its de-facto central bank.
Institutions…
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