A view of Hong Kong Photo: VCG

The Chicago Mercantile Exchange (CME) Group said that it will launch options on its existing US dollar/yuan futures on April 3, which experts said reflects the growing global influence of Chinese yuan. 

Experts expect the internationalization of the yuan will accelerate in 2023 thanks to China's projected strong economic rebound and its financial sector opening-up.

"The yuan trading has become a core part of global foreign exchange trading and we're delighted to offer these options contracts to help clients manage currency risk as China resets its economy during this period of reopening," Paul Houston, global head of foreign exchange products for the CME Group, said in a statement on the company's website.

The group said that relevant futures contracts will undergo regulatory review.

It marks an important step of the yuan's internationalization, Zhou Maohua, an economist at Everbright Bank, told the Global Times. He said the exchange's rollout of offshore yuan options will increase the currency's global influence by enriching financial transactions overseas, while providing a new tool for global investors to hedge risks. 

"Most importantly, more yuan-denominated financial products overseas will increase the use of the yuan, boosting its internationalization.

Zhou said the enhanced internationalization of the yuan will promote China's role in international governance, help optimize China's foreign exchanges structure, reduce the spillover effects of other central banks' monetary policies, and provide convenience for cross-border trade and settlement.

Solid progress is made

The yuan has made marked progress in internationalization. It has become the world's fifth-largest payment currency, third-largest currency in trade settlement and fifth-largest reserve currency. 

The yuan accounts for 7 percent of all foreign exchange trades across the world, the biggest expansion in currency market share over the past three years, recent data showed.

The share of the yuan in the IMF's Special Drawing Rights basket rose from 10.92 percent in 2016 to 12.28 percent in May 2022.

In recent years, many countries have increasingly pivoted to the yuan in bilateral trade settlement or deposit it as foreign exchange reserve. Iraq started to settle trade from China in the yuan. Iraqi imports from China were previously financed in US dollars only.

The People's Bank of China (PBC), the central bank, has signed currency swap deals with central banks in 40 countries and regions, with a total value of more than 4 trillion yuan ($573.6 billion). Recently, the PBC signed a memorandum of cooperation with the Central Bank of Brazil to establish yuan-clearing arrangements in Brazil, expanding the yuan's use in South America.

As part of Russia's de-dollarization move, the Russian finance ministry said in February that it would reset the share of the euro in its National Wealth Fund starting from this year, leaving only gold, yuan and rubles, Russian media reported.

New opportunities

The 20th National Congress of the Communist Party of China stated that China will promote the internationalization of the yuan in an orderly way. 

In addition, this year's Government Work Report emphasized that China will keep the yuan's exchange rate generally stable at an adaptive and balanced level.

Amid a sluggish global economic recovery in 2023, growth in China is expected to rise, which will increase the attractiveness of yuan-denominated assets, boost capital flows back to China and further promote the internationalization of the yuan, said Guan Tao, global chief economist at BOC International under Bank of China.

"The US Federal Reserve's drastic interest rate hikes have led to dollar shortages in the market, which exposed the flaws of the current international monetary system. The Fed's monetary policy could not take account of the international economic environment while also dealing with domestic economic problems," Guan told the Global Times.

The large US interest rate hikes drew money into the US and strengthened the dollar, with both emerging markets and developed economies, including the eurozone and Japan, encountering capital outflows and local currency depreciation. The EU central bank adjusted its monetary policy partially out of consideration for the euro's depreciation, while the Japanese central bank repeatedly intervened in the market for the yen, which may boost the multi-polar development of the international currency system, Guan said.

"Some countries have also been diversifying their foreign exchange reserves for non-economic reasons, which also provides opportunities for the yuan's internationalization," he said.

However, challenges persist amid global changes unseen in a century, as global industrial and supply chains are being restructured, according to experts.

Huo Yingli, a member of the Chinese People's Political Consultative Conference and Party secretary of the China Foreign Exchange Trade System, suggested that companies be encouraged to use the yuan for the settlement of cross-border trade and investment transactions.

They should also take advantage of low-cost yuan financing and expand the use of local currencies with important trade partners such as the Association of Southeast Asian Nations.

Pan Gongsheng, deputy governor of PBC, said at a press conference on March 3 that the authorities will accelerate the institutional opening-up of the Chinese financial market and further raise the opening-up level of the country's foreign exchange and financial markets to make it more friendly and convenient for investment and financing.