The number 4.52% has left many Chinese people disappointed and puzzled.
According to the latest data released by SWIFT (Society for Worldwide Interbank Financial Telecommunication), in April 2024, the proportion of the Renminbi (RMB) as an international payment currency was only 4.52%, even lower than the 6.84% for the British Pound, and significantly behind the 47.3% for the US Dollar.
However, just recently, in the first quarter of 2024, China's GDP reached $4.17 trillion, equivalent to 59% of the US GDP.
Considering the factors of exchange rate fluctuations, China's economy is still robust.
So, why is China's economic strength so significant while the Renminbi's position in international payments lags far behind?
The reasons behind this are worth pondering.
Disparity in Status: Stemming from the vast gap between China and the US in terms of strength
The degree of currency internationalization directly reflects a country's comprehensive strength.
Currency is a manifestation of national power, and recognition internationally can only be achieved on the foundation of strong national strength.
From this perspective, the gap in the international payment status of the currencies of China and the US is actually a reflection of the gap in their comprehensive strengths.
For years, the US GDP has consistently remained the highest in the world.
Despite recent slowdowns in economic growth, the US still maintains a dominant position in various fields.
For example, in the military sector, US military expenditures account for 36% of global military spending, about three times that of China.
In the field of technology, based on the annual number of patents granted, the US is more than twice that of China.
Even in manufacturing, the US still holds a monopoly advantage in key areas, such as leading semiconductor manufacturing technology, military equipment, etc., exerting absolute dominance in the global supply chain.
Furthermore, the US holds overwhelming advantages in global trade, investment, finance, etc.
In terms of currency, the US dollar's dominance in global trade settlements is absolute, accounting for about two-thirds.
It is these comprehensive strengths that have established the dominance of the US dollar, leaving many countries with no choice but to use the US dollar as an international reserve currency and trade settlement currency.
In comparison, although China's GDP has risen to the second-largest in the world, there still exists a significant gap compared to the US.
Over the past five years, China's share of the global economy has hovered around 18%, considering the recovery of some developing countries after the COVID-19 pandemic, there is still a gap of 10 percentage points compared to the US, which holds 28% of the global economy.
The differences in the industrial structure between China and the US are also very obvious:
The US mainly focuses on high-end services and finance, with the tertiary industry contributing 80% of GDP;
While China still relies mainly on manufacturing, with the overall industrial chain at a medium to low-end level.
Therefore, the Renminbi's lagging position in international payments compared to China's economic size is actually an inevitable result of the huge gap between China and the US in comprehensive national strength.
Exchange Rate: Opportunities brought by Renminbi appreciation and deflation
Currently, the global economy is facing significant differentiation and reshaping, which also brings new opportunities for the internationalization of the Renminbi.
The US dollar has just entered a new round of interest rate hikes, while China is the first country to recover from the pandemic and begin raising interest rates.
This means that in the foreseeable future, the Renminbi will continue to strengthen, becoming part of the currency appreciation.
At the same time, global funds will also be reconfigured, with a large amount of capital flowing into China, the new engine of growth.
According to forecasts, by mid-2024, the Renminbi's exchange rate against the US dollar may break through 6.5, and in the next five years, it may even shrink to around 1:4. By then, the Renminbi will become an effective alternative to the US dollar.
As the largest emerging economy, China's economy is expected to surpass that of the US around 2028, and its economic strength will be more in line with its international currency status.
Financial opening channels are also gradually opening up. China has signed bilateral currency swap agreements with more than 30 countries and has introduced measures to facilitate the international balance of payments position of the Renminbi, accelerating the pace of opening up its financial markets.
In the future, Renminbi assets are expected to be more included in sovereign wealth funds and international reserve assets, ultimately qualifying for international payments.
At the same time, China is actively developing digital Renminbi, establishing a Renminbi cashless payment system, and introducing it into international settlements.
It is expected that in the next decade, digital Renminbi will play an increasingly important role in the global payment system.
The internationalization of the Renminbi is a phased process.
The first stage is its increasing acceptance and use in actual transactions such as global trade and investment;
The second stage will see the Renminbi becoming a reserve currency, becoming an alternative currency in the international reserve currency system.
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