China | RMB Internationalization: what is the progress for BBVA footprint countries?

Summary

We analyze the recent progress of RMB internationalization in BBVA footprint countries including Spain, Türkiye, Argentina, Colombia, Peru, Mexico, Venezuela and Brazil.

Key points

• Key points:
• China's authorities initiated the course of its currency’s internationalization approximately 15 years ago, sparking optimism about the RMB’s future as a significant player in the international monetary system.
• The RMB has managed to establish itself as an important international currency, although it still lags behind the USD, Euro, Japanese Yen, and British Pound in terms of ranking.
• The increasing usage of the RMB in the aftermath of the Covid-19 pandemic can be attributed to a combination of factors, such as the persistent high inflation in advanced economies has led their central banks to raise policy rates significantly since 2008; the emerging risks of global financial fragmentation give new impetus to de-dollarization.
• The usage of RMB in BBVA footprint countries serves two main purposes. First, it helps mitigate the shortage of other international currencies during periods of economic stress, as seen in the cases of Argentina, Türkiye, and Venezuela. Second, it facilitates a reduction in the dominance of the USD in a country's cross-border payments.
• Considering China's close economic ties with South America, there is significant potential to increase the usage of RMB in the region. This indicates even countries like Peru and Colombia could potentially adopt cross-border RMB payments in the future. However, for countries like Spain and Mexico, it is likely that they will continue to primarily rely on the Euro and USD, respectively, in their cross-border transactions.

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