Creating an Alternative? The Impact of Ukraine War Sanctions on Renminbi Internationalization

Abstract

The Chinese currency renminbi and its potential to compete with other international currencies, such as the US dollar and the euro, is the subject of an intense and ongoing debate. This working paper investigates whether sanctions imposed as a reaction to the Ukraine war accelerated the process of renminbi internationalization. It tests whether international sanctions drive governments and private actors wary of dollar and euro dominance over the international financial system toward the renminbi as an alternative currency. To test the hypothesis and give a detailed overview of the current status of renminbi internationalization, this working paper compiles the functions international currencies fulfill for private and official actors. It then employs the interrupted time series regression method to trace the impact of Ukraine war sanctions on the renminbi. The results indicate that international sanctions overall did not lead to increased popularity of the renminbi. Instead, the renminbi is used less as a reserve currency and for investment purposes. As a means of payment, sanctions did not have a big impact, although renminbi currency swap lines and renminbi trade finance have seen an increase in popularity.