Expanded local currency settlement, broadened currency swaps expected

China will further advance worldwide use of the renminbi over the next five years while remaining committed to maintaining currency stability, as part of broader efforts to enable the financial sector to better serve the real economy and promote high-standard opening-up, officials said on Thursday.

The country will expand local currency settlement, broaden the coverage of currency swap arrangements and move toward the full opening-up of its onshore financial market, while having neither the need nor the intention to seek a competitive trade advantage through currency depreciation, they said.

The efforts come as China has launched a plan to build itself into a financial powerhouse during the 15th Five-Year Plan (2026-30) period, seeking to achieve high-quality development of the financial sector while serving economic and social development, effectively addressing financial risks and strengthening financial regulation.

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Lu Lei, deputy governor of the People's Bank of China, the country's central bank, said at a news conference on Thursday that the internationalization of the RMB, also known as the yuan, has maintained steady progress and become an "irreversible trend".

Overseas entities now hold more than 11 trillion yuan ($1.64 trillion) in RMB-denominated onshore financial assets, Lu said, while outstanding offshore RMB loans have exceeded 1.2 trillion yuan.

Lu said China will promote wider bilateral local currency settlement, expand the coverage of currency swap agreements, and support overseas central banks in establishing regular policy tools that use RMB swap funds to facilitate trade and investment.

The PBOC has 33 bilateral local currency swap agreements in effect with overseas counterparts, totaling 4.6 trillion yuan.

The central bank will also expand connectivity between domestic and overseas financial markets and improve mechanisms including Stock Connect, Bond Connect and Swap Connect, facilitating a shift toward the full opening-up of the onshore market, he said.

Analysts said the policy direction could indicate a gradual shift from channel-based opening-up arrangements toward more comprehensive access to China's onshore financial market.

Regarding monetary policy, Lu said the PBOC will remain firmly committed to maintaining currency stability and thereby promoting economic growth, while gradually reducing its emphasis on quantitative intermediate targets and attaching greater importance to interest rate adjustments.

Stressing that China's trade has become significantly less sensitive to exchange rates as exporters' bargaining power increased over the years, Lu reiterated that the country does not seek a trade advantage through currency depreciation.

China operates a managed floating exchange rate system that enables the market to play a decisive role in exchange rate formation, he said, while the PBOC guards against herd-like behavior and the self-reinforcement of irrational expectations.

Li Bin, deputy administrator of the State Administration of Foreign Exchange, said China's balance of payments is expected to remain broadly balanced during the 15th FYP period, as imports and exports will become better coordinated and both outbound and inbound investment are likely to expand.

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Funds generated by China's current-account surplus are channeled back into the global economy through overseas industrial and financial investments, supporting the development of partner economies' industries and financial markets, Li said, with the country's total external assets having hit nearly $12 trillion by end-2025.

Meanwhile, Li Chao, vice-chairman of the China Securities Regulatory Commission, said China will accelerate a new round of capital market reform and opening-up, further consolidating the foundation for market stability and enhancing investor returns.

Medium and long-term institutional investors — including social security funds, pension funds and insurance funds — have made combined net purchases of more than 600 billion yuan in A shares since the beginning of the year, Li said.

Dong Yuan contributed to this story.

Contact the writers at zhoulanxv@chinadaily.com.cn