Core Viewpoint - The article discusses the internationalization of the Renminbi (RMB) and its potential to increase its share in global reserves, currently at 2%, by leveraging China's economic growth and expanding foreign investment opportunities in RMB-denominated assets [3][9]. Group 1: RMB Internationalization Progress - Since 2009, China's efforts to internationalize the RMB have shown limited progress, with its international usage still less than half that of the British pound and significantly lower than the US dollar [4]. - China's GDP share in global GDP has increased from 6% in 2000 to 19% in 2023, highlighting its growing economic influence [3]. - The RMB's internationalization could be accelerated by emerging market central banks diversifying their assets, especially in the context of geopolitical changes post-2022 [4]. Group 2: Determinants of Reserve Currency Status - Key factors influencing the choice of reserve currency include inertia, economic size, financial market depth, currency credibility, and increasingly, geopolitical considerations [5]. - A panel regression model from 1986 to 2022 reveals that reserve currency status exhibits strong inertia, with adjustments to reserve composition being slow and minimal in the short term [6]. - Economic size is identified as the most significant determinant of reserve currency share, with potential critical points where further GDP increases could lead to disproportionate growth in reserve share [6][7]. Group 3: Historical Insights on Currency Dominance - Historical transitions of currency dominance, such as the shift from the pound to the dollar, illustrate that becoming a dominant currency is a lengthy process, often taking decades [8]. - The policies and actions of both the challenger and the incumbent currency significantly impact the international use of currencies [8]. - Major economic downturns can hinder the internationalization process of a currency, as seen in past instances with the dollar and other currencies [8]. Group 4: Unique Aspects of RMB Internationalization - China's approach to RMB internationalization may focus on expanding the offshore market (CNH) while keeping the onshore market (CNY) relatively stable [10]. - The RMB's internationalization is expected to play a more significant role in foreign direct investment (FDI), particularly towards Belt and Road Initiative countries [11]. - The development of a cross-border payment system (CIPS) and RMB-denominated commodity trading is part of China's strategy to enhance the RMB's global standing [12]. Group 5: Challenges and Opportunities - The growing manufacturing strength of China and geopolitical changes present new opportunities for RMB internationalization, but challenges remain in balancing market stability with foreign investor demands [13]. - The rise of stablecoins and financial innovations poses regulatory challenges, necessitating urgent strategies from Chinese authorities to address potential risks and ensure effective oversight [13].