On September 5th, at the plenary session and opening ceremony of the 6th Bund Financial Summit, Huang Qifan, former Mayor of Chongqing and currently an academic advisor to the China Finance 40 Forum, delivered a keynote speech, sharing his latest observations and thoughts on the internationalization of the Chinese yuan.

Huang Qifan stated that in recent years, the process of internationalizing the yuan has accelerated, but overall, it still does not match the position of China's economy in the global economy.

The convertibility of capital accounts is an important direction for expanding financial openness, but achieving this goal also requires the yuan to gain its rightful place.

Huang Qifan emphasized that the purpose of promoting the internationalization of the yuan is to maintain the stability of the global industrial and supply chains, rather than to replace the status of the US dollar in the world.

In addition, Huang Qifan proposed a multi-pronged strategy to accelerate the internationalization of the yuan.

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First, to continue promoting the pricing and settlement of China's cross-border trade in yuan; second, to continue improving services and providing cross-border yuan settlement services for new forms and models such as cross-border e-commerce; third, to continue expanding openness and providing more convenient investment and financing services for "bringing in" and "going out"; fourth, to accelerate the development of the yuan offshore market, continue to leverage Hong Kong's status as an offshore yuan center, further enrich yuan products, provide better targets for yuan offshore investment and financing, and promote the use of the yuan in the RCEP region.

Below is the full text of Huang Qifan's keynote speech at the 6th Bund Financial Summit.

I am very pleased to participate in this year's Bund Financial Summit.

The report of the 20th National Congress of the Communist Party of China proposes to orderly promote the internationalization of the yuan.

Today, I will talk about my understanding and views on this topic for everyone's reference.

First, in recent years, the process of internationalizing the yuan has accelerated, but overall, it still does not match the position of China's economy in the global economy.

In recent years, the internationalization of the yuan has made significant progress.

Especially in recent years, as the interest rate spread between the yuan and the US dollar has expanded, the comprehensive index of yuan internationalization has not decreased but increased.

The yuan has made significant progress in payment settlement, investment and financing, pricing, and reserves.

According to SWIFT data, in December 2023, the proportion of the yuan in global payment settlement reached 4.14%, which is nearly 2 percentage points higher than the same period in 2021.

That is, in these two years, it has been increasing at a speed of about 1 percentage point per year, and it is now the fourth-largest payment settlement currency.

More and more overseas market entities are considering using the yuan as a financing currency for trade with China.

With the increasingly sound renminbi swap arrangements and clearing networks in China, more and more Chinese enterprises choose to use the yuan for foreign direct investment when "going out," and more and more domestic industrial and commercial enterprises tend to use the yuan as the pricing currency in international trade contracts.

In terms of reserve currencies, since August 2022, the latest Special Drawing Rights (SDR) currency basket of the International Monetary Fund (IMF) has officially taken effect, and the weight of the yuan in it has been increased from 10.92% to 12.28%.

It should be said that these developments are very pleasing.

However, we must also clearly see that there is still a lot of room for the internationalization of the yuan, and there is still a lot of work to be done.

At present, China is one of the three hubs of the global value chain (China, the United States, Germany) and is the largest trading partner of more than 140 countries and regions around the world.

In 2023, the total export volume of goods reached 23.77 trillion yuan (RMB), accounting for 14.2% of the global export market share, and has maintained the position of the world's largest trading country for seven consecutive years; the total import volume was 17.99 trillion yuan, accounting for 10.6% of the global share, and has been in the world's second place for many years, with import sources covering more than 200 countries and regions around the world.

Moreover, China is a global investment powerhouse, and its foreign investment outflows have been the second-largest in the world in the past two years.

Behind these data is a huge demand for international payment settlement, investment and financing, trade pricing, and currency reserves.

According to a report by the People's Bank of China, by the first quarter of 2023, China's yuan internationalization index was only 3.26, while the indexes of the US dollar, euro, and pound were 57.68, 22.27, and 7.66, respectively, with a considerable gap.

Second, China's promotion of the internationalization of the yuan is not to replace the status of the US dollar in the world, but to maintain the stability of the global industrial and supply chains.

There is a saying that China's promotion of the internationalization of the yuan is to make the yuan a world currency, replacing the current status of the US dollar in the world.

I personally cannot agree with this statement.

Whether it can become a world currency depends on the needs of world economic development.

With the in-depth development of economic globalization and the further improvement of China's level of opening up to the outside world, the breadth and depth of China's interactions with the world will be further expanded, and the yuan will be increasingly accepted by more and more economies and market entities, and its internationalization process will be promoted.

However, it must not be thought that the yuan can replace the status of the US dollar in the world.

Looking at the global currency pattern, it can be roughly divided into three categories: one is the US dollar, which is the world currency.

The US GDP accounts for 25% of the global economy, but nearly 50% of international payments are priced and settled in US dollars, and the proportion of US dollars in global foreign exchange reserves is close to 60%.

The second category is the euro, pound, yen, etc., and the economies corresponding to these currencies account for the proportion of the world economy is roughly equivalent to the proportion of these currencies in the global market.

The third category is other economies, whose currency status is far lower than the proportion of its GDP in the world.

China is already the world's second-largest economy, with a GDP share of 17% of the global economy in 2023, and the yuan as a settlement currency only accounts for a few percent of the global payment settlement; as a reserve currency, it only accounts for a few percent of the world.

In the future, the internationalization of the yuan should at least achieve a status comparable to that of the euro, pound, and yen, and be equivalent to the proportion of China in the world economy.

It should be noted that the process of internationalizing the yuan is an inevitable choice for China's economy to be more open and developed, and it is needed for the internationalization to maintain the stability of the global industrial and supply chains.

China needs to build a financial powerhouse, and it certainly needs a strong currency, but this strength should be matched with its own stage of economic development, and it should be strong to serve the real economy, rather than becoming a tool for breeding asset bubbles, harvesting wealth from other countries, and sanctioning other countries at will.

Third, to promote the internationalization of the yuan in multiple ways and accelerate the construction of the offshore yuan market.

The decision of the Third Plenary Session of the 20th Central Committee proposes to promote high-level financial openness, steadily and solidly promote the internationalization of the yuan, and develop the offshore yuan market.

The internationalization of the yuan is an important part of high-level financial openness.

Steadily and solidly promoting the internationalization of the yuan can be advanced from the following aspects: First, to continue to promote the pricing and settlement of China's cross-border trade in yuan.

At present, China's foreign trade has reached a new high, especially with an increase in imports in the future.

In the first nine months of 2023, the proportion of yuan settlement in goods trade reached 24.4%.

Moreover, with the continuous advancement of high-quality joint construction of the "Belt and Road," especially with the deepening of China's economic and trade cooperation with Southeast Asian countries, it is expected that by 2030, this proportion will reach 35%; by 2035, it will reach 45%.

Based on this, it is expected that the proportion of the yuan in global payment settlement will increase by 1 percentage point every year, and by 2035, the proportion of China's yuan in payment settlement will reach about 17%.

Second, to continue to improve services and provide cross-border yuan settlement services for new forms and models such as cross-border e-commerce.

In 2023, China's cross-border e-commerce import and export reached 2.38 trillion yuan, with a growth of 15.6%.

Cross-border e-commerce has become a new force in global trade and an important driving force for promoting China's trade development.

The Third Plenary Session of the 20th Central Committee requires the promotion of customs, tax, foreign exchange, and other regulatory innovations to create a regulatory environment conducive to the development of new forms and models.

In the future, as more and more small and medium-sized enterprises go online, they will promote the application of the internationalization of the yuan.

Third, to continue to expand openness and provide more convenient investment and financing services for "bringing in" and "going out."

Over the past four decades, China has continuously reached new highs in attracting foreign investment, from 2 billion US dollars per year in the 1980s, to 30 billion US dollars per year in the 1990s, to 60 billion US dollars per year from 2000 to 2010, to 120 billion US dollars per year from 2011 to 2020, and to 160 billion US dollars per year in the past few years.

China has been the second-largest country attracting foreign investment for many years.

It can be predicted that in the future, China will still be one of the most favored destinations for foreign investment.

In this process, foreign investment entering China can be in foreign currency or in yuan.

Foreign investment entering in yuan can become a mechanism for the reflow of the yuan.

At the same time, as Chinese enterprises go out, foreign investment can also use the yuan as the main currency, driving the yuan to go out.

In this way, a virtuous mechanism for the two-way circulation of the yuan is formed.

Fourth, to accelerate the development of the yuan offshore market.

At present, Hong Kong, Singapore, London, and others have become the main yuan offshore markets.

Among them, Hong Kong is the world's largest offshore yuan center.

In 2023, SWIFT message data showed that Hong Kong had cross-border yuan customer remittances and receipts with 103 countries and regions, accounting for about 15.9 trillion US dollars of global yuan payment settlement, accounting for 73.3% of the global yuan payment settlement.

Next, we need to continue to leverage Hong Kong's status as an offshore yuan center, further enrich yuan products, and provide better targets for yuan offshore investment and financing.

At the same time, it should be noted that the RCEP region is also one of the most active areas for the cross-border use of the yuan, and promoting the use of the yuan in the RCEP region is also an important direction for the construction of the offshore yuan market.Four, the convertibility under capital accounts is an important direction for expanding financial openness, but achieving this goal requires the renminbi to attain its rightful status.

Promoting the free convertibility of capital accounts is inherent in expanding financial openness and building a strong financial country.

In recent years, a lot of work has been done by relevant departments around the convertibility under capital accounts, and a lot of progress has been made.

However, it should be pointed out that the internationalization of the renminbi is related to and distinct from the free convertibility under capital accounts.

It is not the case that free convertibility under capital accounts means that the internationalization of the renminbi will naturally succeed, but rather, only when the internationalization of the renminbi reaches a certain level, it becomes a necessary condition for the free convertibility under capital accounts.

In fact, this is a trade-off between financial openness and security.

Only when the level of renminbi internationalization reaches a level commensurate with China's status in the world economy, does the more free convertibility under capital accounts have the necessary conditions.