China’s international payment processing system is unlikely to offer an alternative for trade between Chinese seafood buyers and suppliers in sanctioned countries like Russia, according to a report compiled by Alicia Garcia Herrero, chief economist for Asia at the French investment bank Natixis and shared with SeafoodSource.
Suggestions that Russia could turn to China's international payment system (CIPS) payment system instead of using SWIFT is “not a solution,” Garcia Herrero said.
“[It’s] for a very basic reason,” she said. “It still depends on the global messaging system for cross-border transactions, from which Russian institutions have been excluded thanks to Western sanctions.”
Wary of the power of the dollar as a geostrategic tool as well as a haven for foreign investors, which effectively ensures low-cost U.S. government debt, China has long stated its aim to internationalize the use of the yuan. However, it has also been wary of losing control of the currency, fearing the implications of an exit of capital from the country. The result has been a piecemeal effort at liberalization.
Use of the yuan as international currency has grown, but remains limited, the report found. In 2021, the yuan surpassed the Japanese yen to become the fourth-most used currency in terms of the number of private cross-border transactions, as reported by the Society for Worldwide Interbank Financial Telecommunication (SWIFT). China is also hoping the development of E-CNY, its central bank’s new digital currency, will be a way to promote the yuan as an international currency.
The share of global payments using the yuan rose to 3.2 percent, but that remains a small share of the global marketplace relative to the size of the Chinese economy, Garcia Herrero wrote. The rising use of the yuan for international payments was accompanied by an increased number of cross-border payments processed through CIPS since the third quarter of 2020, according to Natixis. Some of that has been pushed by China’s central government, which recently came to an agreement with Saudi Arabia to pay for its oil purchases with yuan.
“Trade continued to be the most-important reason to use [the yuan] for international payments, with a sharp rebound in 2021 in line with the very robust increase in Chinese exports since the pandemic started,” Herrero said.
Yet the yuan remains a long way from competing with the U.S. dollar as an international currency, the report said. The yuan’s liquidity and loans held by overseas institutions remained limited while the share of yuan in official reserves globally increased slightly to 2.7 percent in the third quarter of 2021. Foreign investors continued to flock to the Chinese onshore bond and stock markets in 2021, but at a slower rate than in 2020, prompted by a lowering of rates by the People's Bank of China and a regulatory crackdown on the Chinese stock market, the Natixis report noted.
Photo courtesy of ThewayIsee/Shutterstock
