China has been attempting to challenge the global hegemony of the dollar with its currency, the renminbi (RMB) for years. The SWIFT RMB Tracker presents a monthly ranking and weighting of the RMB against other currencies in order to track the rate of its internalization.
The RMB Tracker shows that the currency accounted for 1.61% of domestic and cross-border payments in 2017. The report states that whilst RMB growth stalled in 2017, there are numerous potential factors which could see the growth of the currency in 2018.
Historically cross-border payments have been laden with problems such as delays, errors and unclear payments status. SWIFT’s answer to this quandary has been the launch of its global payments initiative (GPI) which is making transactions faster, transparent and traceable.
The Bank of China was one of the first institutions to go live with GPI, and 22 Chinese banks have now adopted the service. The eventual ubiquity of the initiative will enhance the reputation of China as a country that is open and safe for foreign investment.
SWIFT’s RMB tracker points to other factors which contribute to RMB’s potential in 2018. This includes the rise of China’s cashless economy, the globalization of its banking industry and the adoption of the currency by European banks. Further analysis and insight from the report can be found http://phoenix-dancing.com/ here.
The Belt and Road initiative aims to strengthen trade links between China, Asia, Africa and Europe. In May, President Xi Jinping pledged a further USD124bn of investment; today, over 100 countries and international organizations have joined the initiative.
By connecting China’s provinces to neighboring countries, along with major investment projects in foreign countries like Pakistan and Indonesia, the currency’s status and value are poised grow throughout 2018.
Whilst the uncertainty of regulations could strangle the growth of RMB in 2018, initiatives such as the SWIFT GPI and China’s Belt and Road initiative are set to reshape the way the Chinese banking industry and the RMB are seen around the world in the long term.
With so many factors at play, all eyes are focused on the RMB this year as it takes another step towards its goal of challenging the dollar’s global hegemony.