China’s yuan overtook the euro to become the second-most used currency in global trade finance this year, according to the Society for Worldwide Interbank Financial Telecommunication.
The currency had an 8.66 percent share of letters of credit and collections in October, compared with 6.64 percent for the euro, Swift said in a statement yesterday. China, Hong Kong, Singapore, Germany and Australia were the top users of yuan in trade finance, according to the Belgium-based financial-messaging platform. The yuan’s share of global trade finance was 1.89 percent in January last year, while the euro’s was 7.87 percent, Swift said.
“The renminbi is clearly a top currency for trade finance globally and even more so in Asia,” Franck de Praetere, Swift’s Singapore-based head of payments and trade markets for Asia Pacific, said in the statement.
China is seeking a greater role for its currency in global trade and investment as the state loosens controls on the exchange rate and borrowing costs in the world’s second-largest economy. People’s Bank of China Deputy Governor Yi Gang (易綱) said on Nov. 20 that it is no longer in the nation’s interest to keep building up its foreign-exchange reserves, which totaled a record US$3.66 trillion at the end of September.
Yuan deposits in Hong Kong, the largest pool outside China, rose the most since April 2011 to a record 782 billion yuan (US$128 billion) in October. Agreements were announced this quarter to start direct currency trading between the yuan and both the British pound and Singapore dollar.
The Chinese currency ranked No. 12 for transactions in the global payments system in October, unchanged from the previous month, according to Swift figures. Payment value for the currency rose 1.5 percent that month, less than the 4.6 percent growth for all currencies, the data showed. That saw the yuan’s market share drop to 0.84 percent from 0.86 percent in September.
International use of the yuan is increasing as China opens up its capital markets. In the first nine months of this year, about 17 percent of China’s global trade was settled in the currency, compared with less than 1 percent in 2009, Deutsche Bank AG said.
The Chinese central bank limits the yuan spot rate’s daily moves to 1 percent on either side of a fixing it sets every day. The trading band was widened in April last year, after being expanded from 0.3 percent in May 2007.
The People’s Bank of China will “basically” end normal intervention in the foreign-exchange market and broaden the yuan’s daily trading limit, Governor Zhou Xiaochuan (周小川) wrote in an article in a guidebook explaining reforms outlined after a Chinese Communist Party meeting that ended on Nov. 12.