As the second largest economy in the world, China's RMB should be widely circulated internationally. But what many people can't imagine is that the proportion of RMB in international payment is actually very low, accounting for less than 2% of international currency payment in 2020.

In comparison, the payment proportion of Japanese yen and British pound is higher than that of RMB. The former will pay more than 3% in 2020, while the latter will pay close to 8% in 2020.

So why does this happen?

RMB hedging and control

In fact, the most fundamental factor that causes this phenomenon is that China's RMB is very inconvenient for foreign countries to use, especially when it is used for overseas payments. Because China is one of the few international mainstream currencies that can hedge foreign currencies, such hedging has led to a natural antagonism between RMB and foreign currencies.

To put it simply, for every dollar that enters China, the People's Bank of China will issue RMB equivalent to its value, that is, 6-8 yuan. At the same time, China is restricting the circulation of foreign currencies in China and the circulation of Renminbi abroad. The main means of the former is the limit for individuals to exchange Renminbi for US dollars (US $50000 per person per year), while enterprises to exchange Renminbi for US dollars need to be supervised, and only state-owned banks have the right to exchange Renminbi for foreign currencies.

The latter simply means that you can't buy things abroad with the RMB in China. At this time, foreign enterprises with a large amount of RMB in their hands are faced with two choices when they finish their business at home. One is to take these RMB out of China and make them offshore RMB. The second is to convert these Renminbi into foreign currencies dominated by US dollars in China, and then leave China.

The companies that will choose the former are basically foreign enterprises that have long-term trade with China, but for countries that do not often do business with China, the latter is obviously more appropriate. After all, China is not a strong international currency like the US dollar. People do not necessarily charge RMB for transactions between foreign enterprises and foreign enterprises.

Therefore, for foreign-funded enterprises, if they do not regularly do business with China, their enthusiasm for using RMB will be very low, and people will be reluctant to use RMB. If China liberalizes such RMB control and foreign currency hedging policies, the international circulation of RMB will obviously increase a lot.

Because the RMB in hand can be freely converted into US dollars in China, and the US dollars in hand can also be freely converted into RMB in China, so when the exchange rate of RMB against the US dollar is stable, there is no difference between the RMB in hand and the US dollar in hand, which is very convenient to use.

As for why Japanese yen and British pound are used more than RMB, these currencies should be more convenient to use than the existing RMB. Second, the two currencies entered the "free market" earlier.

China joined the World Trade Organization in 2001, so the massive circulation of RMB in the international market is just what happened in the past 20 years. Compared with the Japanese yen and the British pound, it has a big disadvantage.

Third, in fact, the pound in those years is like the dollar now. Britain was once an empire where the sun never sets, and the pound was once the most mainstream currency in the world. Coupled with the gold standard system, Britain's credit rating was quite high before World War II.

Therefore, the current sterling has actually been the result of the reduction of circulation ratio many times, and it is normal that the international delivery ratio is several percent higher than the current RMB.

Stability brought by RMB hedging and control

In addition, since China will have such hedging policies and RMB control, it naturally has its reasons. The biggest value of this restriction is that China can ensure the stability of the RMB exchange rate against the US dollar, and the country has a much stronger ability to regulate the market.

For the former, the depreciation of China's exchange rate against the US dollar in 2022 is actually reflected.

At that time, the exchange rate of RMB against the US dollar fell from above 6.6:1 to below 7.2:1 all the way. It is not difficult to see that the RMB fell very hard in terms of the exchange rate changes between RMB and the US dollar. But if compared with other foreign currencies against the U.S. dollar, China's RMB will be very strong.

For example, the exchange rate ratio of the US dollar to the Japanese yen is still around 1:120 at the end of 2021, but by October 2022, the exchange rate ratio of the US dollar to the Japanese yen has exceeded 1:140. If we go back a little bit, we will find that the exchange rate of the US dollar against the Japanese yen will be around 1:100 by the end of 2020.

Compared with RMB, the exchange rate of other foreign currencies fell more severely against the US dollar, which, to some extent, has shown that RMB has stronger resilience and stability.

RMB hedging, control and financial harvesting

As for the state's ability to regulate the market, the "financial war" between China and the United States in 2015 has also proved the role of RMB in foreign currency hedging policies and control policies.

Since 2014, the big capitals of Wall Street have planned to short the Chinese stock market. According to the plan of Wall Street, China's stock market will fall sharply in 2015. At this time, Wall Street's capital can return the short stocks to China, and then buy them at the lowest point of China's stock price. Once they go, they can "cut leeks" in China.

However, Wall Street obviously underestimated China's ability to control the market. When Wall Street needed to return short stocks, China's major financial institutions began to rescue the market, and a large number of foreign exchange and RMB were put into the market. The expected decline of China's stock market did not occur, but their own capital was locked in the Chinese market.

As far as the "trade war" between China and the United States is concerned, many people may not see the seriousness behind it. In fact, there is a country that has been reaped alive in history, that is, the "Soros Shorting the Thai Baht Event" in 1997.

Here we can check several data to know how much the short selling has hit Thailand.

In December 1996, Thailand's foreign exchange reserves were about 37 billion US dollars. After Soros's short selling in 1997, by July 1997, Thailand's foreign exchange reserves were less than 3 billion US dollars, and the foreign exchange reserves of the whole country had decreased by more than 90%.

As for where the money went, it was naturally in the wallets of Wall Street financial giants. Moreover, the "Soros short the Thai baht event" did more damage to Thailand than that. After Soros short the Thai baht, the inflation rate of the whole Thailand rose significantly, and then almost all people lost their jobs. Then the bankruptcy of the Thai government spread to the whole Southeast Asia, causing the Asian financial crisis.

So with the living example of Thailand, we can easily see how dangerous Wall Street's short selling and harvesting of China in 2015 is. In fact, Thailand has also made interventions similar to China's hedging of foreign currencies in the face of this short selling crisis.

At that time, Thailand used foreign exchange (mainly US dollars) to buy a large amount of domestic Thai baht to ensure that the domestic Thai baht would not depreciate because of too much. Domestic banks are prohibited from lending Thai baht to foreign individuals or enterprises to ensure that these short sellers of Thai baht will not have too much Thai baht. However, it is a pity that Thailand is not only small in size, but also too late to take these measures, which ultimately led to Wall Street's success in shorting the Thai baht.