In July, the Chinese yuan’s share in global payments hit a record high, and kept its fourth-place spot in the ranking of payment currencies, with its share of global transactions rising to 4.74 percent from 4.61 percent in June.

The increase was noted in data from the Society for Worldwide Interbank Financial Telecommunication (SWIFT). Actually, it was the ninth consecutive month the Chinese currency’s share stayed above 4 percent.

Late July saw the release of the 2024 Annual Report of Renminbi Internationalization, developed by Renmin University of China’s International Monetary Institute. It uses the Renminbi Internationalization Index (RII) to track the yuan’s progress in trade settlements, financial transactions and official reserves. A higher RII indicates a greater degree of internationalization. At the end of each quarter in 2023, the RII values were reported as 5.21, 7.13, 6.42 and 6.32 points, respectively, with an annual average of 6.27 points, up 22.9 percent year-over-year, demonstrating strong momentum in the yuan’s internationalization.

This follows on from what I have focused on in some of my previous articles and conference speeches about the gradual (albeit slow) internationalization of the yuan.

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Indeed, more and more countries — from Latin American countries like Brazil to Southeast Asian nations; in general countries from the Global South — are calling for trade to be carried out in other currencies besides the US dollar (what we can call de-dollarization trends).

In this sense, I think China’s digital yuan can indeed help the nation internationalize its currency, while taking into consideration the point that Hong Kong can play a role in this process.

The digital yuan is of course not the only way through which China can internationalize its currency but just one more (albeit one more that can have importance in years to come).

The digital yuan (e-CNY) is a central bank digital currency (CBDC), which is a new form of central bank money accessible to the public, accepted as a means of payment, as legal tender, and is a safe store of value for all citizens, businesses, and government agencies.  

However, while the introduction of CBDCs promises a variety of efficiency savings and new functionalities, it is important to remember that it does not solve all the problems of payments — particularly cross-border payments — on its own.

China is streets ahead in terms of digital payments and the e-CNY doesn’t disrupt existing ways to pay (with QR codes and face-recognition payments already being widely used in China through Alipay and WeChat Pay). However, the biggest innovation is its ability to use smart contract technology. The Guangdong-Hong Kong-Macao Greater Bay Area, especially the Hong Kong Special Administrative Region, boasts inherent advantages in the development of blockchain technology (we must bear in mind that Hong Kong is becoming one of the world’s most important Web3 hubs).

Focusing on the idea of the digital yuan being used for cross-border payments, China’s e-CNY will be beneficial in many different ways, but one of the areas where it can bring more value is in promoting the use of the yuan for cross-border payments.

To my way of thinking, countries participating in the Belt and Road Initiative (BRI) are the best possible candidates for China to start internationalizing its digital yuan, along with those participating in the Regional Comprehensive Economic Partnership (RCEP), without neglecting the important role that Hong Kong can play in this.

The BRI is a major global initiative promoted by China, and consequently it is perfectly possible to imagine how beneficial the expansion of the digital yuan can become to China and to participating countries. Experts attending the Belt and Road Summit 2024, which takes place in Hong Kong from Sept 11 to 12, are expected to shed light on this as well as other new developments under the initiative.

The BRI has turned 10 years old. During this decade, it has grown from an early-stage project into a much bigger and complex reality. As per the BRI official website, more than 150 countries and 32 international organizations (most of which are in Africa and across Asia) have joined this massive project, with more than 200 agreements currently underway or completed. The BRI is a transcontinental long-term investment program that aims at infrastructure development and acceleration of the economic integration of countries along the route of the historic Silk Road.

This is related to what I mentioned a few months ago in my article Green Silk Road: Belt and Road Initiative Projects Become Greener (China Daily HK Edition, April 21, 2024). The Green Silk Road looks at making Belt and Road projects greener and more sustainable. Chinese policymakers have increasingly focused on greening the BRI in recent years. The scope of the Green Silk Road includes reducing climate emissions, reducing pollution, and protecting biodiversity, while ensuring improved economic opportunities for the countries involved.

Back to today’s Belt and Road Summit. The event will show the opportunities offered by the BRI, one of them being the potential for China to internationalize the yuan through participating countries.  

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Focusing on Hong Kong, the special administrative region can play a key role in helping the yuan to internationalize, given its competitive advantages as the world’s largest offshore renminbi center and adherence to the “one country, two systems” principle, the cornerstone of the city’s system. According to SWIFT, more than 70 percent of global offshore renminbi payments are processed in Hong Kong.

To sum up, China has progressed significantly in promoting the internationalization of the yuan after having launched its digital yuan, which may be able to boost global wholesale use of the RMB, and the BRI and RCEP can be perfect platforms to do so.  While facilitating cross-border adoption of the digital yuan, such economic exchanges in the same way will help any of the other CBDCs in Asia. Moreover, Hong Kong can play a key role in helping the yuan to internationalize, given its role as the world’s largest offshore RMB center.

The author is a fintech adviser, a researcher, and a former business analyst for a Hong Kong publicly listed company.

The views do not necessarily reflect those of China Daily.