In July 2009，the People’s Bank of China (PBC) and five other ministries jointly issued the Measures for the Administration of Pilot RMB Settlement in Cross-border Trade，launching the pilot program of facilitating the renminbi utilization in cross-border settlement in four provinces and cities including Guangdong and Shanghai. Since then，the renminbi settlement in various cross-border trade and investment scenarios，driven by the market demand and policy support，has made tremendous progress over the past decade. Under this changing world，the cross-border use of RMB will continue to deepen，making new contributions to China’s further opening-up and its efforts to build new systems for a higher-standard open economy.

The Cross-border Use of Currency and Internationalization of Currency

Throughout history，currency circulation has generally been confined by geographical and jurisdictional boundaries. However，it is not unusual to see multiple currencies competing and coexisting in the same region，which becomes more evident as the market becomes more segmented. For example，in early 20th century，banknotes circulated in major Chinese cities，while silver coins or copper coins were still used by rural residents in the inland areas (Zhang Jia’ao，2018). In addition，it is also not rare for a currency to surpass geographical or national borders and become a common unit of account and circulation. For instance，the Maria Theresa silver coin with the 1780-year mark was still in circulation in specific regions of Africa and West Asia until the 20th century，while Chinese copper coins were used in the neighboring countries for centuries (Akinobu Kuroda，2007).

The cross-border use of currency literally constitutes a transaction network that crosses national borders. During the period when metallic coins and banknotes were prevalent，the use of currency in cross-border trade was largely influenced by the natural spillover of imported and exported goods，as well as personnel exchanges. The scale of such transactions hinged on the level of economic and trade interactions between countries，as well as the degree of transportation convenience between them. In the age of credit-based economy，bank deposits dominate. And the international usage of currencies is influenced by the connectivity of banking systems，the maturity of financial markets，and the efficiency of payment and clearing infrastructure. Additionally，it involves the acknowledgment of the currency used in cross-border trade and investment at the multilateral or even international level，reflecting the institutional arrangements and operational characteristics of the international monetary system.

Despite close interrelation，the concepts of cross-border use of currency and the currency internationalization differ from each other. The former refers to the state where currency circulates and is used across borders or national boundaries，while the latter is the dynamic process of expanding the partial or the full functions of a currency from a country’s applicable area to the neighboring regions，countries，and even the whole world，eventually becoming a universal currency used in a certain region or around the globe (PBC，2018). The cross-border usability of a nation's currency enables it to participate in pricing，settlement，and other bilateral or multilateral trade and investment functions. However，it does not necessarily imply that it is a global currency. To become the common currency utilized worldwide requires large-scale usage in the cross-border trading and investment scenarios. And it also needs to create an international trading network around itself，play the role of a transaction medium and value storage，and win recognition by the international community. Although currency internationalization goes beyond cross-border use，cross-border use is the market’s foundation，a vital connotation，and a prerequisite for the currency to be used worldwide. An international currency will not survive if it is not widely used in cross-border transactions since it will appear as though the system’s main pillar has been lost.

Under the context of currency internationalization，the cross-border use of currency follows a set of mechanisms featuring “going out，coming back，staying，and manageable” in a circular manner. The two terms “going out” and “coming back” mean that the domestic currency can flow in both directions through trade and investment channels and financial links at home and abroad. It can serve as a transaction medium for payment and settlement and cater to the needs of “exchange of time” and “exchange of space”，which is compatible in terms of convenience. The term "staying" suggests that the domestic currency can be utilized and kept in foreign countries or offshore financial centers based on market demands and can be connected to the domestic market through specific channels and mechanisms. The term "manageable" indicates that the financial regulatory authorities of the nation shoulder the responsibility of policy-making，infrastructure maintenance，and risk evaluation and management. They can effectively manage the currency by prioritizing its domestic circulation，while also considering its external flow，preventing it from becoming a transnational currency that circulates without constraint across borders.

Process and Progress for Cross-border Use of RMB

Since the introduction of the reform and opening-up，the development of cross-border use of RMB has gone through roughly three stages. The first stage began with the spontaneous circulation in neighboring regions and countries before 2009，when a small-scale cross-border circulation and cash deposit of the Chinese yuan emerged through channels such as personnel exchanges，trade，and tourism with neighboring countries and regions like China's Hong Kong and Macao. From 2003 to 2004，the trails of RMB clearing for personal usage in Hong Kong and Macao were established，which tentatively probed into the mechanism of cross-border use and inflow of the Chinese yuan. The second stage is the gradual formation and expansion of a benign cycle of cross-border use of the renminbi from 2009 to 2016. Following the principle of prioritizing the Chinese yuan and coordinating domestic and foreign currencies，China launched pilot projects that facilitated the renminbi settlement in various cross-border trade and investment scenarios in July 2009. The country established and improved the policy framework to boost cross-border use of RMB，and expanded a significant cycle in utilizing the Chinese yuan in cross-border transactions driven by the market demand and policy supply. The third stage was marked by the formal inclusion of the renminbi in the International Monetary Fund’s (IMF) Special Drawing Rights (SDR) currency basket in October 2016，making the Chinese yuan an internationally recognized international currency. With the further opening-up of China’s financial market，the cross-border use of the renminbi has entered a new age. As a result，RMB internationalization index (RII) has steadily increased.

Overall，the past decade has witnessed rapid development and significant breakthroughs in the cross-border use of the renminbi. First，it is observed that a large-scale cross-border circulation of RMB with complete currency functions has been formed. The RMB cross-border receipts and payments have increased from less than 10 billion yuan in 2009 to  36.6 trillion yuan in 2021，accounting for 47.4% of the total cross-border receipts and payments of domestic and foreign currencies during the same period. This proportion increased to 49.1% in the first half of 2022. The RMB cross-border receipts and payments remained in basic equilibrium，with a net inflow of 404.47 billion yuan in 2021. In terms of structure，from 2009 to 2016，the cross-border flow of RMB funds was mainly under the current account and direct investment. Together，they accounted for more than 80% of the total cross-border settlement of RMB. Later，with the further opening-up of China’s financial market，the cross-border use of the renminbi grew remarkably，which was evident in the surge of the cross-border receipts and payments under the capital account. In addition，RMB bonds were successively included in the three major international bond indices. Securities investment accounted for 60% of the total RMB cross-border receipts and payments in 2021，and the share of cross-border transactions settled in RMB in commodities trading also grew rapidly. More importantly，the international pricing，payment settlement，investment and financing，and reserve functions of the Chinese yuan have also steadily expanded and enhanced.

Second，a cross-border circulation mechanism of the renminbi linking home and abroad has been established. The expansion of channels for the cross-border flow of the Chinese yuan follows a path from the current account to the capital account，from direct investment to financial transactions，and from institutions to individuals. Gradually，it enables establishing a circulation mechanism covering three major channels，including the current account and the direct investment，financing，and financial markets. The RMB cross-border receipts and payments under the current account registered RMB 7.95 trillion，accounting for 17.3% of the total cross-border receipts and payments under the current account in domestic and foreign currencies during the same period. Trade in goods，trade in services，and income and regular transfer of RMB cross-border receipts and payments accounted for 14.7%，24.3%，and 51.8%，respectively，of the total cross-border receipts and payments of each item under the current account in domestic and foreign currencies during the same period. The capital account’s cross-border RMB receipts and payments totaled RMB 28.66 trillion，of which direct investment，securities investment，and cross-border financing accounted respectively for 20.2%，74.1%，and 5.6%. The RMB outbound investment has increased significantly. Bond investment accounted for 73.1% of the RMB cross-border receipts and payments for securities investment. The Bond Connect，Stock Connect，RMB Qualified Foreign Institutional Investor (RQFII)，and Cross-border Wealth Management Connect are the primary channels. By the end of 2021，the combined RMB deposit balance in major offshore markets such as Hong Kong，Taiwan，and the UK surpassed RMB 1.54 trillion，a year-on-year increase of 21.3%.

Third，China has established a policy system for cross-border RMB business that integrates domestic and foreign currencies. Based on market demand and guided by the promotion of trade and investment facilitation，the PBC and other regulatory departments in finance，commerce，and foreign investment have continuously optimized the systems for cross-border trade，investment and financing，and RMB settlement for financial transactions. Owning to such measures，securities investment has basically achieved integration of domestic and foreign currencies. Businesses such as overseas lending by domestic enterprises，overseas loans by banks，and total cross-border financing and capital pooling by multinational corporations have already achieved or are advancing for the integrated management of domestic and foreign currencies. In addition，steady progress has been seen in the further opening-up of the capital account，as relevant departments have continued to intensify reforms to streamline government administration，delegate power，improve regulation，and upgrade services. It is required to adhere to qualification review and pre-access management under the capital account to reduce pre-approval，improve in-process and post-process monitoring. Therefore，with the implementation of full macro-prudential regulation of cross-border financing，the upper limit of cross-border financing for financial institutions and businesses will be influenced by factors such as leverage ratios，risk conversion factors，and macro-prudential regulatory parameters.

Fourth，the renminbi’s status as an international currency has been consolidated. In 2010，when the IMF conducted an SDR review，the Chinese yuan met the export threshold standard for the currency basket but failed to meet the “freely usable” standard. As the cross-border use of the renminbi gradually expanded，the Chinese yuan met the criteria in the new round of SDR review in 2015 and was included in the SDR basket as the fifth currency. As China allowed greater currency freedom，the IMF raised the weight of the Chinese yuan in the SDR from 10.92% in October 2016 to 12.28% in May 2022. Currently，the renminbi is the world’s fifth-largest payment currency and the third-largest trade financing currency. The share of foreign exchange transactions in the Chinese yuan in the global foreign exchange market has increased to 7%. Besides，growth has also been seen in RMB financial assets held by non-residents in China. As a newly emerging international currency，the role of the renminbi in building bilateral and multilateral financial safety nets has steadily increased. By the end of 2021，the PBC has signed bilateral currency swap agreements with 40 central banks or monetary authorities，totaling more than 4.02 trillion yuan and an effective amount of 3.54 trillion yuan. According to official COFER data from the IMF published on March 31，2023，the Chinese yuan’s proportion of COFER in the fourth quarter of 2022 was 2.69%，ranking fifth globally，and the total RMB foreign exchange reserves held by the major central banks of the world totaled US$298.44 billion.

In general，the expansion of the cross-border use of the renminbi has played a positive role in promoting the sustained and healthy development of international trade and investment，improving the service capabilities and international competitiveness of the domestic financial system，supporting the building of the Belt and Road Initiative，and enhancing China’s comprehensive economic strength and influence.

Reflections on Expanding the Cross-border Use of the RMB in the New Development Stage

Compared with the situation in 2009 when the pilot program to facilitate RMB utilization in cross-border trade and investment was launched，the current domestic and international environment for using Chinese yuan has undergone significant and profound changes. The expansion of cross-border RMB use now faces new opportunities and challenges. In terms of opportunities，under the new development stage，China is pursuing high-quality development and is accelerating the construction of a new development paradigm featuring dual circulation，in which domestic and overseas markets reinforce each other，with the domestic market as the mainstay. On a global scale，China’s economic growth rate is expected to remain relatively high as it continues to build a modern industrial system and promote high-level opening-up，and the scale and depth of international trade and investment have steadily expanded. Meanwhile，the market demand for cross-border RMB settlement will significantly increase. At present，amid significant changes in the world，China is committed to promoting the building of a community with a shared future for humanity. The trend of diversification in the international monetary system is becoming increasingly evident，and bilateral and multilateral currency settlements and regional currency cooperation are deepening. Against this backdrop，it is expected that China will enlarge the circle of friends in the cross-border use of the renminbi in bilateral and regional trade and investment so that the functions of the Chinese yuan in pricing，settlement，investment，financing，and its role as an international reserve currency will be effectively enhanced and strengthened. In terms of challenges，the domestic supply structure is not yet adapted to changes in demand structure，and there are also obvious shortcomings in the smooth operation of domestic circulation. Moreover，the original innovation and basic industrial capabilities are relatively weak，the dependence on important energy and mineral resources from abroad is still relatively high，and risks and hidden dangers in some fields should not be overlooked. China is still under some pressure to maintain the stability of the yuan’s value. Externally，with the world entering a new period of turbulence and change，such unfair practices as currency hegemony，financial sanctions，and technology and export controls are prevailing among the developed economies，resulting in increased risks in cross-border use of non-US dollar international currencies.

The report of the 20th CPC National Congress pointed out that “it is necessary to promote the renminbi internationalization in an orderly manner”. Boosting cross-border use of RMB is the basic premise and practical need for deepening the course. The renminbi internationalization is a gradual and systematic process involving complex games and a long-term evolution of the international political and economic landscape and monetary system.

First，it is advisable to use trade and investment as a link to expand the cross-border use of RMB in the neighboring countries and the countries along the Belt and Road Initiative (BRI). Taking full advantage of China’s growing trade and investment links with Southeast Asia and countries along the BRI，we must make the cross-border use of the renminbi more convenient in terms of policy and actual operation. Specifically，through close cooperation between the “going global” enterprises，including those making investment in foreign projects，contracting enterprises for project construction，equipment exporters，and Chinese financial institutions such as banks and credit insurance，we will vigorously build a large circulation mechanism in which the Chinese yuan flows out through outward investment and flows back through the current account items such as the export of equipment and intermediate goods and trade in engineering consulting services. In addition，it is essential to expand bilateral currency cooperation with neighboring countries，actively implement bilateral local currency settlement agreements，and properly address the operational problems emerging in the areas like the mutual establishment of financial institutions，mutual account opening，exchange rates，listing trading，cash transportation，cross-border payments，and regional trading of small currencies. Furthermore，we must enhance the stickiness of using Chinese yuan in cross-border transactions through trade and investment cooperation so that the proportion of RMB-denominated payments and settlements in bilateral trade will be increased，which is conducive to enlarging the circle of friends in utilizing the renminbi settlement in various cross-border trade and investment scenarios. Finally，in accordance with the need to expand the global network of high-standard free trade zones，we need to increase policy support for the cross-border use of RMB in the new forms and models of foreign trade，such as cross-border e-commerce，overseas warehouses，and offshore international trade.

Second，we must enable the further opening-up of China’s financial sector in an orderly manner and promote the balanced development of channels for the cross-border use of RMB in financing and financial transactions. Institutional opening-up must be steadily promoted in the financial sector，including rules，regulations，management，and standards. We must study，integrate，and optimize the opening-up of securities investment based on the “pipeline” model to facilitate cross-border securities investment by domestic and foreign investors. Meanwhile，it is necessary to expand the pilot cash-pooling service for multinational corporations that integrate domestic and foreign currency management and to improve the administration of cross-border financing，including credit granting，risk control，and interest rate and exchange rate management. Lastly，we must also provide assistance to both domestic and international financial institutions and multinational corporations in their cross-border financing endeavors. Furthermore，we should encourage more foreign sovereign institutions and multinational companies to issue “Panda bonds” in China's market.

Third，it is recommended to promote the coordinated development of onshore and offshore RMB asset markets and expand the circulation of cross-border use of the renminbi. To achieve this goal，it is necessary to diversify the range of products available in China's futures market by including new energy futures. Moreover，we should gradually expand the accessibility of certain futures products to foreign investors and encourage the use of the Chinese yuan for pricing and settlement in the commodity sector. Besides，we need to make good use of the arrangement for the currency swap between the Mainland and Hong Kong. The Hong Kong offshore market is encouraged to enrich the system of RMB asset products like stocks，bonds，derivatives，deposits，and loans. More efforts must be made to promote a virtuous cycle of RMB flows in onshore and offshore markets. In terms of RMB clearing，we need to increase policy support for clearing banks engaging in the renminbi business，optimize the layout of clearing banks，and enable them to enhance their business service capabilities in dealing with cross-border use of RMB to facilitate the development of the offshore RMB market.

Fourth，we must improve the infrastructure for cross-border use of RMB and strengthen macro-prudential management.  Financial institutions are encouraged to tighten in-process and ex-post control and self-discipline mechanism. We also need to make it more convenient to use the renminbi across borders and standardize how RMB business is conducted. In light of the need for monetary control and stable exchange rates，we need to promptly leverage the role of macro-prudential regulation tools for total cross-border financing and effectively guard against cross-border capital flow risks.

The author is the chief economist at the China Institute of Finance and Capital Markets