Research on the Role of RMB-denominated Oil Trade in Promoting RMB Internationalisation
Authors: Han Yi , Song Yucheng , Li Wenyang , Hao Qi , Xie Shizhuang 
Published: September 2023

With the development of the global economy and the continuous expansion of international trade, currency internationalization has become an important goal of monetary policies of various countries. In this context, China has become the second largest economy in the world, and promoting the internationalization of the RMB has become one of the urgent issues for the Chinese government to address. In recent years, the internationalization of RMB has achieved remarkable results, but the use of RMB is still limited in the international commodity market, especially in the oil market. This paper takes the RMB-denominated oil trade as an entry point to analyze its contribution to the internationalization of the RMB and its potential impact. The paper first explains the importance of oil trade to the global economy and analyzes the current situation of the oil market with the US dollar as the main settlement currency. As one of the most important energy sources in the world, oil occupies a pivotal position in international trade. However, for a long time, the pricing and settlement of the oil market has relied mainly on the U.S. dollar, which gives the U.S. dollar a significant dominant position in the global arena and also exposes other countries to the risks associated with exchange rate fluctuations in oil trade. Second, this paper analyzes theoretically and empirically the role of RMB-denominated oil trade in promoting RMB internationalization. Theoretically, RMB-denominated oil trade will help increase the demand for RMB in the international market, reduce exchange rate risk, and thus accelerate the process of RMB internationalization. The empirical analysis shows that in recent years, with the growing volume of China's oil imports and the advancement of RMB internationalization, RMB-denominated oil trade has achieved initial results, and some countries have started to adopt RMB for oil settlement. Then, the paper discusses the challenges faced by RMB-denominated oil trade and the policy measures that the Chinese government should take. In the current international financial system, the U.S. dollar is "entrenched" as an international currency, and it is not easy to realize RMB-denominated oil trade. The Chinese government should strive to improve the credibility and convertibility of the RMB, actively participate in international oil market rule-making, strengthen cooperation with major oil producing and marketing countries, and promote domestic financial market reform to create a favorable external environment for RMB-denominated oil trade. Finally, the paper concludes that RMB-denominated oil trade is important for RMB internationalization. By realizing RMB-denominated oil trade, it is expected to improve the position of RMB in the international market and create favorable conditions for RMB internationalization. At the same time, it will help promote global currency diversification, reduce the sensitivity of China's economy to external shocks, and achieve more stable and sustainable economic development.