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By Georgina Lee and Samuel Shen
HONG KONG/SHANGHAI (Reuters) – China’s virtual yuan has reached the mid-level in the central bank’s biggest cross-border virtual currency (CBDC) test to date, a report showed, highlighting how Beijing is accelerating efforts to globalize the yuan amid emerging geopolitical tensions. .
China’s virtual currency, or e-CNY, the maximum token issued and actively processed in the $22 million pilot allocation that CBDC used to settle cross-border transactions, according to a report by the Bank for International Settlements (BIS).
The six-week trial, which ended last month, is part of m-Bridge, a task that tests cross-border banknotes in virtual currencies issued through the central banks of China, Hong Kong, Thailand and the United Arab Emirates.
The good fortune of large-scale testing comes amid emerging global tensions.
“Many countries around the world, including China, are subject to U. S. monetary sanctions. “It’s the U. S. ,” said G. Bin Zhao, senior economist at PwC China.
“This provides a historic window for China to announce the internationalization of the yuan as the United States militarizes the dollar,” he said, adding that e-CNY provides a shortcut.
Russia kicked out of the dollar formula by the West after its invasion of Ukraine in February, which Moscow has called “special operations. “
At the just-concluded Communist Party Congress, Chinese President Xi Jinping vowed “reunification” with Taiwan, saying China “renounces the use of force. “
Washington warned Beijing that the sanctions it has coordinated against Russia serve as a warning about what to expect if Beijing acts against Taiwan’s autonomy.
“The perceived risk of the United StatesArray. . . has made RMB globalization more of a necessity than a luxury for economic and monetary security,” said Shuang Ding, chief economist for Greater China and North Asia at Standard Chartered. (HK) Ltd. .
A yuan internationalization tracker that Standard Chartered adhered to hit a new high in July, driven by strong yuan-denominated bond issuance in Hong Kong, according to the latest data.
To publicize the use of the yuan, the PBOC in July turned a currency exchange facility with Hong Kong into a permanent agreement, and in September, China agreed to establish a yuan clearing center in Kazakhstan.
In Russia, the use of the yuan in global banknotes has increased since Western sanctions, and an increasing number of Russian companies, Rosneft, Rusal and Polyus, have issued yuan bonds.
GLOBAL AMBITION
China is at the forefront of a global race to expand CBDCs and is stepping up domestic pilot programs, primarily for retail payments.
The PBOC’s involvement in m-Bridge represents its ambition to publicize the global and wholesale use of e-CNY.
Proof of a total of 11. 8 million yuan ($1. 64 million) of e-CNY was issued between August 15 and September 23, and the Chinese currency was used in a total of 72 payment and currency exchange transactions, far more than the other 3 currencies. every.
China’s top five state-owned banks, Bank of China and China Construction Bank, participated in the pilot program, liquidating CBDCs on behalf of their corporate clients.
The higher number of e-CNY emissions “could reflect higher demand for yuan-denominated transactions,” given the country’s higher percentage of regional trade, the BIS Innovation Hub Hong Kong Center said in the report.
EDGE WINDS
The m-Bridge project, jointly presented through the BIS Innovation Center and the 4 participating central banks, ultimately aims to build a common platform for effective and cheap virtual payments to advertise global trade.
But the internationalization of the Chinese yuan, virtual or not, faces demanding situations amid an economic slowdown devastated by COVID outbreaks and a real estate debt crisis.
“Whether it’s the e-CNY or the yuan, at the end of the day, China’s national strength is the deciding factor,” PwC’s Zhao said.
“The yuan or e-CNY would be widely accepted with the approval of China’s forged economic development. “
Another headwind is the fall of the yuan, which has lost about 12% to the US. This year.
“A sustained depreciation due to the deterioration of fundamentals could weaken confidence in the currency,” Standard Chartered’s Ding said.
The yuan’s share as a global payment currency has risen for five consecutive months but remains low, at 2. 44% in September, at 42. 3% for the US dollar and 35. 2% for the euro, according to SWIFT, the global monetary messaging service. system.
($1 = 7. 1952 Chinese yuan)
(Reporting through Georgina Lee and Samuel Shen; Editing by Kim Coghill)