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CSRC Official Says Renminbi Internationalisation Needed to Avoid China’s Exclusion from US Dollar System

A senior finance official has said that China must be wary of exclusion from the US dollar payments system by an adversarial Washington, following the imposition of sanctions upon Russia.

Fang Xinghai, vice-chair with the China Securities Regulatory Commission (CSRC), said that China’s dependence upon the US dollar for international payments put it in a position of vulnerability vis-a-vis potential sanction measures by the Trump administration.

“Such things have already happened to many Russian business and financial institutions,” said Fang at a forum held by financial news outlet Caixin.

“We must make preparations in advance – real preparations, and not just psychological preparations.”

The Trump administration is reportedly mulling the use of sanctions as punitive measures against Chinese individuals and organisations for their involvement in alleged human rights abuses in Hong Kong and Xinjiang.

The US has already imposed sanctions on Russia in response to its invasion of Ukraine, while US congressional documents cite a range of other allegations including human rights abuses, trade with North Korea, and the provision of support to Syria and Venezuela.

Fang also highlighted the risk posed by potential greenback volatility, given that China holds USD$1.07 trillion in US treasury bills, as well as copious investments in developed economies which are denominated in US dollars.

For this reason he views internationalisation of the renminbi as a necessity to avoid the risks created by excessive dependence on the US dollar.

“Yuan internationalisation is a must to offset external financial pressure,” said Fang.

“If our overseas assets were held in yuan there won’t be such worries [over devaluation of the US dollar].”

Internationalisation of the renminbi was a key theme for Chinese central bank officials at the 2020 Lujiazui Forum held in Shanghai from 18 – 19 June.

“Following ongoing strengthening of Chinese economy and finance, the status of the renminbi for international payments, pricing, trade and as a reserve currency has continually increased,” said Pan Gongsheng, deputy-governor of PBOC and head of the State Administration of Foreign Exchange (SAFE). “The global demand for renminbi assets is rapidly increasing.”

PBOC’s plans for a central bank digital currency (CBDC) have also created the possibility for China to build an alternative international payments infrastructure that will bypass the existing US dollar-based system, which is underpinned by the SWIFT international payments messaging system and the Clearing House Interbank Payments System (CHIPS).

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