Geopolitical tensions: a roadblock to the renminbi’s global ambitions?

Moreover, the Belt and Road Initiative (BRI), China’s ambitious infrastructure and investment project, while promoting the use of RMB in participating countries, faces scrutiny and pushback across the globe. Issues of debt sustainability, transparency, and geopolitical influence have led some countries to reconsider their engagement with the BRI, thereby affecting the RMB’s international reach. As of 2023, BRI projects worth over $100 billion were delayed or canceled due to these concerns.

Impact of COVID-19 and global economic stability

The COVID-19 pandemic has further complicated the internationalization of the RMB. The initial outbreak in China and the subsequent global spread of the virus disrupted supply chains, trade flows, and financial markets. While China’s rapid recovery has showcased its economic resilience, the pandemic has underscored the risks of over-reliance on any single economy.

Global economic stability remains fragile, with concerns over inflation, supply chain disruptions, the meteoric rise of AI and the uneven pace of recovery across regions. In such an environment, businesses and investors prioritize stability and liquidity, which are currently more associated with established reserve currencies like the US dollar and the euro

Looking ahead: strategic adjustments and opportunities

Despite these challenges, the internationalization of the RMB is not an insurmountable goal. Strategic adjustments and reforms could pave the way for greater acceptance of the RMB on the global stage.

Firstly, China needs to enhance the transparency and stability of its financial system and real estate sector. Implementing robust regulatory frameworks, ensuring the rule of law, and providing greater clarity on monetary and fiscal policies would build investor confidence.

Secondly, fostering deeper economic ties and trust through multilateral engagements and adherence to international rule-based norms would mitigate the impact of geopolitical tensions. Building alliances based on mutual economic interests rather than geopolitical rivalry could create a more conducive environment for the RMB’s internationalization.

Lastly, leveraging digital innovation, such as the Digital Currency Electronic Payment (DCEP) initiative, could position the RMB as a leader in the evolving landscape of digital finance. The adoption of digital currencies by central banks and the private sector globally presents an opportunity for the RMB to gain traction as a modern, efficient, and secure medium of exchange relative to Cryptocurrencies.

Conclusion

In conclusion, while the current geopolitical situation poses significant challenges to the internationalization of the RMB, it also presents opportunities for strategic recalibration. By addressing structural issues, enhancing transparency, and fostering international cooperation, China can navigate the complexities of the global economic landscape and advance the RMB’s status as a global currency. The journey towards internationalization may be fraught with obstacles, but with the right strategies, the RMB can achieve a more important role in the global financial system. China is moving slowly but surely in the right direction.