Belt and Road Progress: Enhancing Global Trade through Infrastructure and Currency Integration

Expert insight

The recent Third Belt and Road Forum, held in Beijing last week, celebrated the progress of the Belt and Road Initiative BRI, a globally significant project med at fostering economic growth through infrastructure development. This initiative has been pivotal in shaping global trade dynamics since its inception. The forum highlighted several achievements, including increased connectivity between Asia, Europe, Africa, and the Middle East through an intricate network of roads, rlways, pipelines, ports, and digital platforms.

A key focus on trade is undeniable as the BRI strengthen economic ties by facilitating smoother cross-border transactions and reducing trade barriers. According to the article, the use of RMB Renminbi in global payments has seen steady growth over recent years, making up 3.47 of all global payments by value as of June 2023. This represents a notable rise compared to its historical share but is still significantly lower than that of the US dollar and other major currencies like the euro.

One significant development highlighted in the article is the increased use of RMB in China's trade with Russia, largely due to international sanctions imposed on Russia following its invasion of Ukrne. As a result, Russian Central Bank data shows that the share of transactions conducted in Chinese currency jumped from 4 in 2021 to 23. This shift not only underscores the growing relevance of RMB in global trade but also reflects China's strategic efforts to promote the international use of its currency as part of the BRI.

The Russian-China trade figures, which have risen sharply over the past year, demonstrate the tangible impact of increased RMB usage. In January-August 2023 alone, total merchandise trade between Russia and China reached $155 billion, marking a significant year-on-year increase by 74 compared to the same period in 2021 and an additional growth of 32 from the previous year.

Moreover, the Russian National Wealth Fund has significantly increased its RMB holdings, increasing from 30 before the conflict with the US dollar to a current level of 60, effectively excluding USD from its portfolio. This move underscores the growing preference for using local currencies in international trade and finance as part of strategies agnst sanctions.

China's central bank is pushing for greater use of RMB in cross-border transactions, aligning with ongoing efforts to globalize the currency through the Belt and Road Initiative. This strategic pivot signals a commitment to making the RMB more prominent on the global stage and to reducing depency on foreign currencies like the US dollar.

The internationalization of the RMB is an ongoing process that holds significant benefits for China. By gning wider acceptance, China stands to mitigate its exposure to US monetary policy fluctuations, paving the way towards greater economic resilience. As trade flows increase along BRI routes, so too does the use and importance of local currencies in facilitating trade.

The future trajectory of RMB's global adoption is promising as more countries integrate it into their trade activities under the BRI framework, especially those with substantial bilateral trade volumes with China. This tr suggests that while there are no imminent plans for the RMB to replace the US dollar at a global level, its growing role in international finance underscores shifts in global economic dynamics and aligns with broader strategic objectives of fostering inclusive and sustnable growth.

Elvira Mami is a Senior Economic and Risk Analyst at ODI's Global Risks and Resilience Programme.

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