How Does China’s OFDI Promote RMB Internationalization through Direct and Trade-Mediated Channels?

This study examines the direct and trade-mediated effects of China’s outward foreign direct investment (OFDI) on the international use of the Renminbi (RMB) in 30 Belt and Road Initiative (BRI) countries from 2012 to 2024. Using fixed effects and instrumental variable fixed effects models, our results show: First, OFDI has an immediate and positive impact on RMB international usage, confirming its direct role in promoting RMB internationalization. Second, mediation analysis indicates that OFDI with a three-year lag significantly promotes bilateral trade, and trade expansion further enhances RMB international usage; after controlling for endogeneity, this lagged effect is entirely mediated through trade. Third, heterogeneity analysis reveals that both direct and mediated effects have strengthened since 2020, coinciding with the improvement of RMB clearing infrastructure and shifts in the global macro-financial landscape. The findings highlight the dual role of OFDI in advancing RMB internationalization through region-specific strategies that simultaneously strengthen both the direct and the trade-mediated channels in enhancing RMB through cross-border transactions.