Do the U.S. and Europe financial sanctions help promote RMB internationalization?

Abstract

ABSTRACT In recent years, the United States and European countries have implemented widespread and enhanced financial sanctions across multiple nations. However, there exists no consensus on whether these sanctions will accelerate de-dollarization or contribute to the Renminbi internationalization(RMBI). This study empirically investigates the impact of financial sanctions imposed by the United States and European countries on other nations’ use of Renminbi (RMB). We use data on RMB cross-border trade settlement in 149 countries spanning from 2009 to 2021 as a proxy for RMBI. Our findings indicate that increasing levels of financial sanctions exert a significant positive influence on the RMBI of sanctioned countries, especially in nations heavily reliant on China for bilateral trade. These effects persist even amid China facing financial sanctions due to the Sino-US trade conflict.