Rise of the Redback: Internationalizing the Chinese Renminbi

Here's a piece I co-wrote with Heiwai Tang in the Diplomat about how the Belt and Road Initiative could serve as a vehicle for the internationalization of the Renminbi, which has been stalling in recent years. 

The Belt and Road Summit, which brings together government officials, business executives, and industry experts to discuss China’s ambitious Belt and Road Initiative, took place this week in Hong Kong. The most cited figures for the initiative’s total investments range around the $1 trillion mark. In comparison, even the Marshall Plan’s $13 billion — about $130 billion in current dollars — appears paltry.

The Belt and Road Initiative’s importance to Beijing’s foreign policy, and its expected impact on world investment and trade patterns, have been described ad nauseam by western pundits over the past five years. Much of the analysis is overblown. Beijing’s plans for the initiative have been vague and inconsistent. Furthermore, China’s enterprises and policy banks often bite off more than they can chew in politically risky countries. Many Chinese-financed and constructed projects get discussed for years but never materialize. Finally, China already represents the most important source of imports for about three quarters of the Belt and Road countries, and is the most important trading partner for just under half of them. Therefore, the initiative is unlikely to drastically alter global trade patterns.

While the initiative might not radically tilt global patterns of trade and investment in China’s favor, it could help achieve one of Beijing’s key long-term goals, the internationalization of the Chinese RMB. This process, which would see the RMB become a more freely traded currency on world markets and a more widely acceptable form of payment to settle trade deals, is at the heart of Beijing’s economic and political ambitions.