The Ministry of Commerce and the People's Bank of China, the country's central bank, have jointly issued a notice, calling on banks to provide more convenient and efficient settlement services in renminbi for all types of cross-border trade and investment.

In the notice, the two departments call for facilitating cross-border renminbi settlement of trade in goods and services, supporting renminbi pricing and settlement of bulk commodities, supporting overseas investors to invest in China and reinvest in China with renminbi. Banks are encouraged to jointly conduct overseas renminbi loan business at home and abroad, reduce renminbi financing costs in accordance with commercial principles, and better meet the cross-border investment and financing needs of enterprises.

Over the first 10 months of 2022, 18.1 percent of China's foreign trade was paid in renminbi, up 3.4 percentage points year-on-year. The renminbi remains the fifth most active currency in the world, accounting for 2.37 percent of global currency use, according to SWIFT data.

Compared with China's status as the world's second-largest economy, largest goods trading country and largest energy importer, the degree of renminbi's internationalization does not match its status and strategic needs. It is imperative to promote the internationalization of the renminbi.

Over the past year, the United States has imposed sweeping sanctions on Russia through the international financial system it controls, raising concerns in many countries about the weaponization of the dollar. Last year, the Federal Reserve's aggressive interest rate hikes triggered currency depreciation and liquidity risks in most countries in the world. In addition, the US has continued to significantly increase the scale of its debt after the subprime mortgage crisis, especially during the global COVID-19 pandemic, which has weakened the international community's confidence in the dollar system. As a result, some countries are looking for alternatives.

The dollar's primacy depended on the Bretton Woods system after World War II and was reinforced by its dominance in the Middle East oil trade and financial globalization after the Cold War. Bretton Woods II was largely sustained by Asian petrodollars and trading dollars. But now that the US is self-sufficient in energy, and China is the world's largest importer of oil, the US is pursuing trade rebalancing to reduce Asia's dollar surplus. This means that the dollar, which is supported by US demand, will inevitably be weakened.

China has no reason not to take this as an opportunity to use its own currency for trade and investment after the US reduces part of its trade with China, and it should encourage more and more energy and resource exporting countries to accept renminbi pricing and trading, as reducing dependence on the dollar is now an international consensus, particularly among the developing countries.

China should actively promote the central bank currency swap mechanism and try and sign more bilateral local currency settlement cooperation agreements. The country should leverage its strengths in trade, investment and energy demand, give priority to international renminbi transactions, and gradually participate in the building of an international monetary system that is not dominated by the dollar.

This will greatly help strengthen the ability of Chinese companies to trade and invest abroad, reduce the risk of exchange rate fluctuations and make Chinese assets more attractive.

-21ST CENTURY BUSINESS HERALD