Yuan attains record share in global payments

According to the South China Morning Post, share of Chinese yuan in global payments hit a record high in July 2024, a milestone in Beijing’s efforts to fend off the hegemony of the US dollar and increase its say in the global monetary system.

The yuan kept its fourth-place spot in the ranking of payment currencies last month, with its share of global transactions rising to 4.74% from 4.61% in June. The increase was observed in data from the Society for Worldwide Interbank Financial Telecommunication (Swift), the world’s largest interbank messaging service.

It was the ninth consecutive month the Chinese currency has stayed above 4%.

Swift payment data is a major indicator for the relative status of international currencies. Other metrics include frequency of use in foreign exchange markets, commodity trading and governments’ foreign reserves.

The data shows the value of payments settled in yuan increased by 13.4% as compared to June, outpacing the 10.3% growth recorded across all currencies.

The world’s second-largest economy first encouraged the use of its currency in international trade settlements in 2009, part of its response to the global financial crisis.

Yuan usage has been on the rise since Russia was ejected from the US dollar system after its invasion of Ukraine in February 2022. A vast majority of China and Russia’s US$240 billion trade last year was settled in either yuan or roubles.

Beijing’s policymakers have continued to promote the yuan as an alternative currency in international trade, as the perceived weaponisation of the US dollar against Russia has sent chills through emerging markets. In response, countries such as Brazil have expressed a greater openness to accepting Chinese currency.

“Despite depreciation pressures, the yuan’s internationalization has advanced this year, with its overseas use on the rise,” said Ding Shuang, chief Greater China economist at Standard Chartered Bank.

Standard Chartered’s renminbi globalization index, which also tracks the yuan’s international use, continued to grow this year after a strong 33 per cent% increase in 2023 in alignment with Swift data.

The yuan surpassed the Japanese yen as the world’s fourth most active currency in global payments in November 2023, following the US dollar, euro and pound sterling.

In July 2024, the US dollar accounted for 47.8% of global payments, followed by the euro at 22.5% and the pound sterling at 7.0%, Swift data showed.

The yuan also secured the No. 2 position in the trade finance market with a 6% stake, higher than the euro’s 5.8% and second to the US dollar’s considerable share of 83.2%.

As the Global South looks to avoid overreliance on the US dollar amid rising geopolitical tensions, Ding said, the yuan is well-positioned to expand its global role.

But he also pointed out the inherent difficulty of further breakthroughs after the yuan’s internationalization reaches a certain level, considering the state of the country’s capital controls.

“To strengthen confidence in the yuan, the currency’s exchange rate but also the openness of cross-border capital flow must play a role,” he said, stressing the latter was not being prioritized sufficiently by Beijing.

“Currently, China is more focused on stability amid growing external uncertainties. But in the long term, Beijing will need to further relax its controls over capital accounts.”