The People’s Bank of China is making its own history at the Olympics: first out of the gate with a digital currency.
It’s a record PBOC Governor Yi Gang’s team isn’t taking lightly. Though Covid-19 greatly limited attendance, those on hand can use special ATMs at Olympics venues. Foreigners can swap their banknotes into e-CNY, and experience the morphing of science fiction into financial fact.
Yet this week also sees the PBOC making history in another respect: the yuan’s fast-increasing role in the global payments race. Payments using yuan increased to a record 3.2% of global market share, according to the Society for Worldwide Interbank Financial Telecommunications, or SWIFT.
Just as important as the increase is, the explanation behind it is arguably even more important. The jump reflects international funds raising their holdings of Chinese government bonds in a big way, particularly in the last three months of 2021.
The yuan’s increasing popularity, in other words, is pushing demand for Beijing’s IOUs to record highs. There are many explanations for the yuan changing hands more frequently. They include gas giant Gazprom Neft’s move to invoice in yuan rather than dollars while fueling Russian airplanes.
The biggest, it seems, is growing trust in China’s currency and assets denominated in it.
Milestones matter. And as Wang Chunying, deputy head of the State Administration of Foreign Exchange, noted, the amount of China’s domestic bonds held by overseas investors jumped by US$167 billion in 2021, putting them in the big time globally.
For now, Chinese government debt is looking at inflows of as much as $126 billion in 2022, estimates strategist Becky Liu at Standard Chartered Bank. That tally could increase should Beijing make progress reining in excess debt in the property sector.
