against the king dollar, the yuan continues its long march towards internationalization

Where is the yuan on the international stage? The People’s Bank of China (official name of the central bank) will publish a report on the subject on Thursday. “In 2021, the total amount of renminbi cross-border settlements (official yuan name) made by banks on behalf of their customers amounted to 36.61 trillion yuan, up 29% year-on-year, reaching an all-time high in terms of value”indicates the setting (see chart).

In December 2021, the Chinese currency overtook the Japanese yen as the most widely used currency for international payments, expanding beyond Hong Kong and Singapore (see chart) with a share of over 2.4%, which even increased to 3.2% in January 2022.

Yuan 2

In addition, the share of Chinese currency in global foreign exchange reserves was 2.88% in the first quarter of 2022, ie 1.8 points more since its integration in 2016 into the International Monetary Fund (IMF) currency basket (Special Drawing Right, SDR). The yuan is now the 5th most used currency in foreign exchange reserves in the world. In May 2022, the IMF increased its share of its basket from 10.98% to 12.28%, “due to a freer use of the yuan”underlines the report, favored by the fact that “the policy framework for cross-border investment, financing and settlement in yuan has continued to improve, making it better able to serve the real economy”.

Who bought about 300 tons of gold?

Even if she remains far from dethroning the king dollar (see chart) According to Allianz Trade’s global index, the use of the yuan (CNY) as an international currency continues to grow.

Index global devises

At the same time, China has reduced its dependence on the dollar in 2022. In particular by buying gold and selling US government bonds. Central banks bought 400 tons of gold in the third quarter, according to the World Gold Council (WGC). Unheard of in such a period. This should make 2022 a record year as monetary institutions bought 673 tons in just the first 9 months, a volume never reached in a full year since 1967!

However, according to Council data, the main customers between July and September were Turkey (31.17 tonnes), Uzbekistan (26.13 tonnes), India (17.46 tonnes), Qatar (14.77 tonnes) and Mozambique (2 .33 tons). cumulative volume of 91.86 tons, well below the observed 400 tons.

“China probably bought a good amount of gold from Russia”said Itsuo Toshima, an expert on the gold market quoted by the Nikkei Asia news agency. Since the People’s Bank of China has not communicated the level of its gold reserves since 2019, few countries can acquire such a volume.

2022, the year of rising geopolitical tensions

The geopolitical context reinforces the idea of ​​buying a safe haven like gold. Coincidentally, these potential purchases came during a period of high tensions between China and the United States, provoked by the visit to the island of Taiwan by Nancy Pelosi, then Speaker of the House of Representatives, in early August. Moreover, the threat of international sanctions, such as those imposed on Russia by Western countries after the February 24 invasion of Ukraine, is taken seriously by Beijing. Russia has very limited access to the global financial system and cannot count on its sales of gold and hydrocarbons to have currencies. It is also his reserves of yellow metal that kept the financial system from collapsing. Between 2014 and 2020, Russia was the country that bought the most gold. It had 2,298.53 tons at the end of the third quarter, according to the WGC, i.e. 5th stock behind those of the United States, Germany, Italy and France, and just ahead of China (1,948.31 tons).

Unlike the Russian central bank, where gold accounted for 23.3% of foreign exchange reserves in 2021, the People’s Bank of China has only 3.5% of its gold reserves, largely dominated by the dollar, according to the IMF.

The country remains the second-largest holder of US debt after Japan, with $933.6 billion in September 2022, according to data from the US Treasury. Yet these have melted by nearly 10.9% ($113.9 billion) in a year. Sale that enabled the purchase of gold metal.

Because the rivalry between the two giants for global economic leadership is playing out on all fronts. “The next phase of financial globalization could be a polarized system”, says Françoise Huang, economist specializing in Asia at Allianz Trade. According to his optimistic scenario, the multipolar financial system would be characterized by economic actors transparently using both the dollar and the yuan. In his pessimistic scenario, two spheres of influence could form, on the one hand the United States and the dollar, on the other hand China and the yuan, with reduced trade. “The reality could lie between these two extremes, as the future geopolitical situation is likely to drive economic trends much more than in the past”, she says. Especially since in China the reforms in favor of a liberalization of the financial system, which are favorable for a greater international role of the yuan, have taken time in recent years.

The trail of the digital yuan

To catch up with the greenback, Beijing authorities are also favoring another technological option by developing a digital yuan better suited to the evolution of the international financial system, through blockchain technology. Such a cryptocurrency could make it possible to gain efficiency and reliability, but also, and above all, to strengthen international control over its currency, a criterion that remains the priority for the Chinese Communist Party in its confrontation with the United States . .

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