In the third article in “The Rise of the Renminbi” series, TCG explores the role of bilateral swap agreements (BSAs) in China’s RMB internationalization ambitions. Despite Beijing’s hopes that the initiative would foster increased RMB-denominated trade, results have been lackluster thus far. Regardless, BSAs may play an increasingly important role in the sustainable offshore circulation of the redback over the long-term.

Continuing upon the first article in “The Rise of the Renminbi” series, TCG explores China’s strategic approach to the long journey towards RMB internationalization. China has intertwined its global RMB ambitions with the ‘One Belt, One Road’ initiative, a large-scale infrastructure development plan. By providing funding to economically underdeveloped nations, China aims to lead a strong global trade bloc through which new trade and investment can be facilitated in RMB.

In its push for an international RMB, China squares off against the “impossible trinity,” an economic principle stipulating that no open economy can simultaneously manage exchange rates, control monetary policy, and allow for full capital mobility. In recent years, China has attempted to juggle all three at once, but seen limited success. To reap the benefits of a fully internationalized RMB, China must consider the pros and cons of taking a bolder step towards one side of the triangle.

China plans to drive global demand for the RMB by introducing a PBOC-backed digital currency into OBOR and other Chinese-driven global trade initiatives to lubricate cross border trade. While a digital RMB and China’s recent market reforms alone may not be enough to drive demand for the currency to levels that can eventually challenge USD supremacy, the strategy represents the PBOC’s methodical approach to RMB internationalization.