Bilateral Currency Swap Agreements and the Evolution of the International Monetary System: Evidence from the RMB
LU Dong, XIE Hongjie, LIU Tao, LIU Jialin, E Meihe
School of Finance, Renmin University of China; School of International Trade and Economics, Central University of Finance and Economics; School of Economics and Management, Beijing University of Chemical Technology
Summary:
Following the 2008 financial crisis, the fragility of the dollar-dominated international monetary system became evident, prompting global calls to enhance the voice of emerging market currencies and drive the system towards multipolarity. While many economies are reducing dollar reliance through commodity de-dollarization, building independent cross-border payment systems, and adjusting foreign exchange reserves, factors such as expanded Fed dollar swap agreements, rising demand for US Treasuries amid geopolitical risks, and dollar stablecoins may reinforce the dollar's status. The “Resolution” adopted by the Third Plenary Session of the 20th Central Committee of the CPC and the 2025 PBOC Work Conference both emphasized “steadily and prudently advancing RMB internationalization, enhancing the functions of the RMB as an international currency, developing offshore markets and utilizing the functions of currency swaps and clearing banks”. As a key policy driving RMB internationalization, do RMB bilateral currency swap agreements (RMB BSAs) enhance the RMB's status among major international currencies？ Do they promote a multipolar system away from dollar dominance？ What are the mechanisms？ Exploring these questions offers significant academic and practical value for understanding the impacts of currency swaps and guiding RMB internationalization steadily and prudently. By the end of August 2024, the PBOC had signed RMB BSAs with 42 central banks or monetary authorities, with a total scale exceeding 4.1 trillion yuan. While prior studies show that the RMB BSAs are associated with increased amount and probability of RMB usage in international payments (Bahaj and Reis, 2022; Song and Xia, 2020), scant research explores their effect on RMB's share in international trade, its standing among major currencies, and the mechanisms influencing the international monetary system's evolution. Using trade data from 143 economies between October 2010 and February 2018 provided by a major global trade information database and treating PBOC's RMB BSAs as quasi-natural experiments, this paper classifies BSAs into Type I BSAs (trade-focused) and Type II BSAs (trade and financial stability-focused) according to manually collected official signing announcements. Employing a staggered DID model, we analyze how different types of RMB BSAs affect the usage of RMB and USD in international trade. We further examine the channel via offshore RMB trade financing costs, assessing its role in elevating RMB's international status and promoting a multipolar monetary system. We find that signing Type I BSAs increases the RMB share in bilateral trade between the signing economy and China, while the USD share shows no significant change. However, signing Type II BSAs leads to both a significant rise in the RMB share and a notable decline in the USD share. Specifically, economies that signed Type II BSAs show an approximately 4.00% increase in the RMB share in imports, along with a significant decrease of about 3.00% in the USD share, compared to those that did not sign. In the long run, the effects of Type II BSAs persist, with a cumulative increase in the RMB share of over 15.00% and a cumulative decline in the USD share of about 6.00% after 48 months. Mechanism analysis shows that Type I BSAs primarily enhance the availability of RMB financing, and thus do not significantly affect the USD share. By contrast,activation conditions of Type II BSAs focus on maintaining financial stability, which helps reduce offshore RMB financing costs. Therefore, counterpart firms are more likely to use RMB rather than USD for trade financing. Moreover, the positive effect of Type II BSAs on the elevation of RMB's international status is more pronounced in economies with closer import trade ties with China, lower levels of financial stability, and during periods of U.S. raising interest rates. The main contributions of this paper are as follows: First, it innovatively leverages variations in the official announcements of RMB BSAs to better identify the causality between the swap agreement and RMB usage in international trade finance, and further explores the underlying mechanisms. Second, it provides empirical evidence on how RMB internationalization reshapes and promotes the evolution of the international monetary system, filling the gap in the relevant literature. Third, this study explores the policy effects of RMB BSAs across multiple dimensions, including economic characteristics and time periods, thereby providing various perspectives for research on the impact of currency swap agreements on RMB internationalization. Amid heightened geoeconomic risks, global financial volatility, and stablecoin-driven re-dollarization, advancing RMB internationalization requires leveraging Type II BSAs as strategic pivots to expand the bilateral RMB swap network, enhance the offshore RMB's safe-asset attributes, and deploy trade financing to accelerate the multipolar monetary system evolution.
芦东, 谢宏杰, 刘韬, 刘家琳, 俄美合. 双边本币互换与国际货币格局演变——来自人民币的证据[J]. 金融研究, 2025, 542(8): 56-74.
LU Dong, XIE Hongjie, LIU Tao, LIU Jialin, E Meihe. Bilateral Currency Swap Agreements and the Evolution of the International Monetary System: Evidence from the RMB. Journal of Financial Research, 2025, 542(8): 56-74.
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