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Internationalization of RMB a boom for the world

Major announcements this week have rapidly advanced the cause of the internationalization of the Chinese currency, which is expected to bring further benefits to the world.

On Thursday, the first phase of China's Cross-border Interbank Payment System (CIPS) was launched in Shanghai, allowing financial institutions to enjoy clearing services and capital settlement for cross-border yuan transactions.

On Friday, International Monetary Fund (IMF) chief Christine Lagarde announced that the IMF was about to complete the assessment of whether the renminbi would join the basket of currencies making up the Special Drawing Rights.

These announcements have certainly boosted the RMB's status as a global currency, and meanwhile, the sped-up internationalization of the RMB has also brought positive impact on other countries.

Back in May, during Chinese Premier Li Keqiang's visit to Chile, the two countries agreed on a currency swap worth 22 billion yuan (3.5 billion U.S. dollars) over the next three years, which is expected to promote bilateral trade and investment.

China agreed to grant a quota of 50 billion yuan (8.1 billion dollars) to qualified foreign institutional investors in Chile. The China Construction Bank was appointed as a yuan clearing bank for the country, the first of its kind in Latin America.

In January, Argentina requested the fourth installment worth 400 million U.S. dollars of a currency swap of 11 billion U.S. dollars inked in July 2014. The swap was meant to last three years but was used up in just over one year.

The deals are believed to have helped Argentina shed some of its debt burden, according to a report of Argentine consultancy Ecolatina released in August. Another report by Argentine consultancy firm Econometrica also found that the swap had "saved 2015" for Argentina, and "isolated it from international economic reversals."

In September, the People's Bank of China designated the Industrial and Commercial Bank of China as a clearing bank for RMB transactions in Argentina, facilitating bilateral trade and investment.

These actions have helped Argentina, as demonstrated by the country's central bank governor Alejandro Vanoli's effort to seek a second currency swap this week.

China's Ambassador to Argentina, Yang Wanming, told the Noticias Argentinas news agency late September that "we are currently reviewing the request (for a second swap) as we give a lot of importance to financial cooperation with Argentina."

As is shown in the case of Chile and Argentina, the internationalization of RMB helps both sides in a time of tough financial constraints. With the U.S. dollar soaring against Latin American currencies, the RMB provides a strong alternative.

With clearing banks and currency swaps, the likes of Argentina and Chile can boost their foreign reserves in a new denomination and promote bilateral trade with one of their key partners. For China, it settles the RMB as a viable alternative to the U.S. dollar.

While the RMB may not have the presence of the U.S. currency in terms of global trade, it now makes more sense for countries to use it for trade with China or Chinese firms.

The much-anticipated international payment system CIPS, launched by China's central bank, includes 19 Chinese and foreign banks as direct participants. Indirect participants include 38 Chinese banks and 138 foreign banks, the central bank said in a statement.

Such moves also help to relieve a longstanding criticism that the World Bank and the IMF are the only international organizations that developing countries can turn to. Many countries, even those that are traditional supporters of the World Bank, welcome the competition in international finance, as is also shown in the the popularity of the China-initiated Asian Infrastructure Investment Bank.

Latin American countries welcome financial cooperation with China, as the internationalization of the RMB has already brought and will continue to bring benefits to the area.

The warm welcome makes the rise of China as a viable financial partner to the developed and developing world alike not merely necessary, but desirable.

[Source: By Chris Dalby, Xinhua, Lima, 12Oct15]

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small logoThis document has been published on 23Oct15 by the Equipo Nizkor and Derechos Human Rights. In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.