Today, the central bank announced an upcoming reserve requirement ratio cut, which should have been bearish news for the Chinese yuan, but it instead led to a significant appreciation of the yuan exchange rate by 380 points. This is sufficient to indicate that the trend of the US dollar's depreciation is irreversible.

Now that the Federal Reserve has only cut interest rates for the first time, with future rates continuously declining, there is a possibility that they may return to 3% by the end of next year. An increasing number of people believe that the US dollar index will break below 100 in the short term, and it may even fall below 95 by the end of next year.

So, can the Chinese yuan, with its rising international status and strengthening exchange rate, replace the US dollar?

It is important to remind everyone that we must have a clear understanding of the difficulties that lie ahead.

One of the main ways to promote the settlement of the yuan is through the bilateral local currency swap settlement system.

According to the People's Bank of China, by the end of 2023, the People's Bank of China has signed bilateral local currency swap agreements with more than 40 central banks, with a total amount of 4.16 trillion yuan.

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Under the bilateral local currency swap agreements, the central bank will provide a certain scale of yuan loans to the contracting countries, which are lent out and repaid with principal and interest upon the expiration of the agreement.

This is one of the important channels to increase the proportion of yuan payments in international trade, but it also carries risks. Contracting countries may use fluctuations in the US dollar exchange rate to buy and sell yuan in the international foreign exchange market, which could exacerbate the volatility of the yuan, and the fluctuations of the yuan in the future may also be magnified as a result.

On the other hand, we need to clearly see that, according to SWIFT data, the main bodies of yuan payments are still Chinese enterprises and enterprises in Hong Kong.In 2019, approximately 25% of RMB payments outside Mainland China were initiated by foreign enterprises. However, by June 2024, this proportion had dropped to 17%. This means that currently, as much as 83% of RMB payments outside Mainland China are initiated by Hong Kong, China. This data indicates that if Mainland China and Hong Kong, China are excluded, the scale of RMB payments truly initiated by foreign enterprises has seen almost no significant growth.

Especially in the eyes of Jewish financial consortiums, the US dollar is their fundamental interest. Therefore, the rise of the RMB will inevitably face a lot of interference. At present, we have significantly increased the use of RMB in the trade field. If we can further increase the use of RMB in the financial investment field in the future, then the proportion of RMB payments will significantly increase.

Although the trade payments in US dollars have decreased, the global payment share is still as high as 47% to 48%, with the most important payments occurring in the financial investment sector. This includes transactions in bulk commodities, foreign exchange transactions, as well as transactions in US stocks and US bonds. If China's financial market can attract more funds to engage in stock, bond, and foreign exchange transactions, we can also significantly increase the use of RMB.

Recently, the RMB has been appreciating, and A-shares have also seen a significant increase under the heavy news from the central bank. These signals may attract more foreign capital willing to invest in China's financial market, which may be conducive to increasing the share of RMB payments.