The renminbi surpassed the US dollar to become the most-commonly-used currency in China’s cross-border transactions for the first time last month. Part of the increase – the part that has received plenty of attention – is due to wider adoption of renminbi settlement in trade flows: nearly a quarter of China’s current account transactions are now being settled in CNH, up from 17% just before the US and its allies imposed financial sanctions on Russia a year ago. But most of the increase in cross-border use of the renminbi is due to strong growth in CNH-settled financial flows. And most of these financial flows are not with “foreign” partners but with entities in Hong Kong, which is the conduit for flows into China’s onshore markets through the Stock and Bond Connect schemes and also an offshore base for many Chinese firms. The renminbi is crossing the border more often but for the most part it isn’t going far.
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