Yuan overtakes yen in payment rankings

Yuan overtakes yen in payment rankings

Hong Kong: China's yuan overtook Japan's yen to become the fourth most-used currency for global payments, shrugging off a surprise devaluation to rise to its highest ranking ever and boosting its claim for reserve status.

The proportion of transactions denominated in yuan climbed to a record 2.79% in August, from 2.34% in July, according to a Society for Worldwide Interbank Financial Telecommunications (Swift) statement released yesterday.

Overall, global yuan payments increased in value by 9.13% in August, while payments across all currencies decreased by 8.3%, according to Swift.

More than 100 countries used the yuan for payments in August, of which over 90% of flows were concentrated in 10 countries. Singapore processed 24.4% followed by the United Kingdom with 21.6%.

More than 1,700 financial institutions made worldwide payments in the yuan, up 14% from a year earlier. About 600 of these institutions used the yuan for payments without a leg with China or Hong Kong.

In the trade finance sector, the yuan has a 9.1% share in the global issuance of letters of credit by value, strengthening its position as the second most used currency for this purpose.

Foreign exchange transactions in the yuan by value also increased by 20% in August from a month earlier, probably due to the devaluation of the yuan by the People's Bank of China, Swift said.

The report comes as the International Monetary Fund prepares to conduct a twice-a-decade review of its Special Drawing Rights basket, which currently comprises the US dollar, euro, yen and the British pound.

China has been pushing the yuan's case for inclusion, which Standard Chartered Plc estimated could trigger as much as $1 trillion of inflows into the currency.

The PBoC on Aug 11 devalued the yuan reference rate by 1.9% and switched to a more market-oriented fixing, spurring a 2.6% slide in the currency in August.

"The data are positive for the probability of the yuan getting into the SDR basket," said Nathan Chow, an economist at DBS Group Holdings Ltd in Hong Kong who predicted in January that the currency would surpass the yen in global usage this year.

"It shows that the so-called devaluation in August, which wasn't massive in value, hasn't driven people away from using the yuan."

IMF staff members said in a report in August that the yuan trailed other currencies in metrics the fund tracks in determining the SDR basket.

Key indicators to qualify include the share a currency makes up of official reserves, international banking liabilities and global debt securities, as well as its use in foreign-exchange markets.

Last year, the yuan ranked seventh for share of official reserves, behind the four SDR members as well as the Australian and Canadian dollars, according to the IMF.

China is trying to increase the yuan's usage around the world as it looks to reduce the dollar's dominance of global trade.

The PBoC has appointed yuan-clearing lenders in 10 countries including South Africa and Argentina in the past year and opened the local bond and currency markets to overseas central banks. 

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