It is important to facilitate the internationalization of renminbi to provide more scope for China's economy to develop internationally

In 2008, the subprime mortgage crisis in the United States triggered the global financial crisis. The institutional defects of the international monetary system attracted wide attention, and new public goods and solutions were sought. The renminbi hence started its journey to be used in global trade and investment.

After more than 10 years of development, the renminbi was included in the International Monetary Fund's Special Drawing Rights basket, which initially established the renminbi's position in the global monetary system. However, the internationalization of the renminbi still has a long way to go to catch up with the development of China's economy and trade investment.

The pandemic has led to a resurgence of global trade protectionism and unilateralism, which are not conducive to the internationalization of the renminbi. However, in the face of the financial games and containment strategy of the United States, it is necessary for China to enhance the scope of the renminbi's use internationally.

It should improve the role of the renminbi as an international currency and earn a better international acceptance rate for China's financial assets.

Data released by the IMF in July showed that in the foreign exchange reserves of central bank holdings in the first quarter, renminbi assets totaled $221.48 billion, accounting for 2.02 percent of the world's official foreign exchange reserve assets, the highest proportion since October 2016 when the IMF began to report the renminbi reserve assets. The rising share of the renminbi in the global central banks' foreign exchange reserves reflects the growing interest of foreign investors in holding renminbi assets and better international acceptance rate of China's financial assets.

Enhancing the role of the renminbi as an international currency is an important aspect of the long-term internationalization of renminbi. In recent years, China has seized the moment to expand the use of the renminbi in the oil price and trading, enhancing its influence on commodity pricing, and combining the energy related industry with the financial industry with the "petroyuan" so as to meet the challenges of the international commodity market price volatility. In March 2018, the Shanghai International Energy Exchange officially started trading crude oil futures, denominated in the renminbi, with net price trading and bonded delivery. The Shanghai crude oil futures volume ranks third in the world, after WTI crude futures and Brent crude futures. As more and more countries in the international multilateral crude oil trade choose to use the renminbi for settlement, the demand and scale of the use of the renminbi will increase significantly, which will promote the increasing use of currency swaps between central banks and the use of the renminbi among overseas governments and private institutions.

The renminbi can be gradually established as a safe haven currency to provide more options for international reserve assets.

In recent years, as the flexibility of the renminbi exchange rate has increased, the renminbi exchange rate against a basket of currencies has remained basically stable. The exchange rate of the renminbi against the US dollar has a new feature of two-way expectations and fluctuations. The confidence of the global market in renminbi assets have been improved, during the global financial market downturn, the renminbi exchange rate has been more stable than that of other currencies. After a short decline, it often makes a significant rebound, which shows the resilience and flexibility of the renminbi exchange rate. Therefore, in the post-pandemic era, we should gradually establish the hedging function of the renminbi exchange rate to provide stronger support for the international use of the renminbi.

Efforts should be made to strengthen international clearing and settlement, and speed up the development of financial infrastructure for the internationalization of the renminbi.

The clearing, receipt and payment system is the financial infrastructure for the cross-border and international use of currencies. International clearing, including the transmission and processing of information flows, and the settlement and clearing of capital flows, are its two important components. The SWIFT(Society for Worldwide Interbank Financial Telecommunication) is mainly responsible for the transmission of information flow, and the process does not involve liquidation or affect capital flows. The international clearing system has been established by the major economies, and China has established CIPS(Crossborder Interbank Payment System), which is entrusted to CNAPS(China Advanced National Payments System), the domestic clearing system for final fund settlement. The two systems complement each other, and cannot be separated from each other. In 2016 and 2018, SWIFT and CIPS signed two strategic cooperation memorandums, in which both parties sought to make full use of their respective advantages to improve the efficiency of the renminbi cross-border payment services and promote the internationalization process of the renminbi.

In the post-pandemic era, we should continue to optimize the construction of CIPS supporting facilities, improve the effective operation of CIPS, enhance the efficiency of cross-border capital transfer, and provide a supporting liquidity arrangement mechanism for renminbi foreign exchange trading and oil and other commodity futures trading. We should also encourage more overseas countries and regions to set up domestic and local renminbi payment and settlement systems, and establish a system connection with CIPS.Moreover, we should encourage overseas investors to more extensively participate in the trading of renminbi investment, financing and financial products, facilitate the inflow of foreign capital, strengthen the advantages of renminbi business, and provide strong support for the internationalization of the renminbi.

Steadily expanding the international use of the renminbi would help broaden the space for China's economic development.

The author is chief economist at Bank of China (Hong Kong). The author contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.