(Yicai) Oct. 30 -- Insiders from regulators, universities, and domestic and international financial institutions discussed the next 10 years of the Chinese yuan internationalization at the 2026 Bund Summit.

They agreed that the internationalization of the yuan will accelerate, while the focus will gradually shift from popularizing the use of the yuan to retaining yuan investors and users.

Since the yuan was officially included in the Special Drawing Rights basket in 2016, its internationalization has gone through a key decade. During this period, Chinese goods and services made significant progress in going global, and China’s financial markets opened up steadily.

Today, amid changes in the external environment and a divergence in global interest-rate patterns, the yuan internationalization is facing an important opportunity.

Lower-Than-Expected Yuan Appreciation Ceiling

The US dollar-denominated monetary system will not disappear or collapse overnight, but shifts are accelerating, said Miao Yanliang, chief economist at China International Capital Corporation.

The market share of the yuan may increase only gradually in a linear way, while its influence could rise in a nonlinear manner, he noted, adding that if the yuan’s market share can increase significantly over the next 10 years, it will truly become a trusted option for users in many countries and regions.

Against the backdrop of a 6.5 percent appreciation of the yuan against the US dollar over the past year, market expectations for continued yuan strength have been rising.

The US dollar was also a strong currency over the past year, with the US Dollar Index appreciating nearly 4 percent against other currencies, Miao pointed out. He believes that the yuan’s appreciation trend will continue, but it has a ceiling that is likely lower than many people expect.

One important factor behind this judgment is the impact of artificial intelligence. For the first time, AI is concentrating technological progress in the services sector, especially non-tradable services, such as healthcare, education, courier services, and food delivery.

“As a result, these technological advances are likely to first show up as lower prices, which will put pressure on China’s price formation mechanism,” Miao explained. This could also lower the yuan’s real equilibrium exchange rate, thereby reducing the ceiling for yuan appreciation, he added.

Great Leap in Demand for Yuan Use

Compared with the high-interest-rate environment in major economies around the world, China’s low-interest-rate window is seen as an important opportunity for the yuan internationalization.

The internationalization of the yuan is essentially about enabling the currency’s three core functions -- payment, pricing, and investment -- to operate internationally, said Huang Yiping, dean of the National School of Development at Peking University. Ultimately, the goal is to make it possible for overseas users to use the yuan and be willing to use it, and the key is to ensure they can hold it, he explained.

Huang suggested expanding the use cases for yuan cross-border payments based on current conditions, including payment cooperation with countries in the Global South. Meanwhile, China should gradually open up its financial markets. Before the domestic market is fully liberalized, the offshore yuan market should be fully leveraged as a complementary channel.

“For the yuan internationalization to make real progress in the future, much will depend on how strongly the yuan can function as a financing currency in financial markets and on whether it can truly be used by international institutions and attract international investors,” said Jin Zhongxia, director of the Treasury and Portfolio Management Department of the New Development Bank.

Panda bond issuance has expanded significantly this year, Jin noted. Among the NDB’s member countries, demand for the yuan has clearly increased in some cases, driven by close trade ties, favorable policy and institutional conditions, and the interest-rate environment, he added.

How Can Funds Come in? How Can the Yuan Be Used?

“Several years ago, clients would ask me whether they could pay in yuan,” said Vina Cheung, HSBC’s global head of yuan internationalization. “Now, they ask whether they can use the yuan across the entire supply chain.”

She highlighted four key concerns from clients: the yuan is still not fully convertible; yuan financing costs are still relatively attractive, but the currency’s appeal has declined when the cost of converting into US dollars is taken into account; offshore yuan liquidity is not stable enough, and there is demand for long-term hedging products; and yuan settlement efficiency could still be improved.

“Yuan investors and financing participants care about whether funds can enter easily, whether liquidity is sufficient so that they can sell bonds or stocks when they need cash and exit smoothly, and whether the capital they deploy can be effectively used to manage foreign exchange and interest rate risks,” said Wesley Yang, deputy chief executive officer of Standard Chartered China.

Hong Kong is not only the largest offshore yuan center, but also one of the most practical currency hubs, Cheung said, adding that she hopes Hong Kong’s offshore yuan market can decisively move from connecting markets to connecting capital, data, and real-time assets.

“We need more transparent pricing, hedging not limited to three years, and 10- and 15-year hedging solutions,” Cheung noted. “We also hope to continue expanding the scope of eligible collateral. These are all areas in which Hong Kong can play a positive role in China’s capital market opening process.”

The panda bond market is still relatively small, Jin believes. For the yuan to become a currency that can be relied upon, the internationalization of China’s bond market still needs to improve, becoming more predictable, implementing more stable rules, adapting to long-term planning, and becoming truly reliable for investors, he pointed out.

Editor: Futura Costaglione