On the Issue of International Currency, Internationalization of Yuan and Settlements by National Currencies

Abstract

Shifts in the global landscape entailed a critical look at the existing currency composition of international settlements. But global vehicle currencies are those that have a set of properties minimizing transaction costs. Here, not much has changed since the appearance of the earliest theories (Swoboda, 1968). A great deal of work has been done to create a system of settlements by offshore yuan, but it is still a currency isolated from the onshore renminbi. China’s ambitions on vehicle role of yuan are overestimated. The country settles imports by national currency, being ready to open selectively its financial market in this favor.Quest for an alternative to the dollar as a vehicle currency seems not to be a productive agenda but «underutilization» of a number of currencies is a problem. The ruble remains underutilized but with its current 15–30 percent weight in export receipts and import payouts there is no simple answer to the question whether competition could push it up further. However, considerations of a different kind are becoming significant. These are integrating role of Russia in the region of Eurasia and risks arising with geopolitical tensions. The SDAC’s integrated regional payment system SIRESS seems like a good example regional network, while Chinese Domestic Foreign Currency Payment System gives an example of increased security of foreign currency transfers inside the economy.