World Economy

Yuan Overtakes Yen in Global Payments

Yuan Overtakes Yen in Global PaymentsYuan Overtakes Yen in Global Payments

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 statement on Tuesday, Bloomberg reported.

It was second for global issuance of letters of credit by value with a 9.1% share, compared with 80.1% for the US dollar.

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 estimated could trigger as much as $1 trillion of inflows into the currency.

The People’s Bank of China 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 dollar, euro and British pound remained the top three currencies, with the share of payment volumes at 45%, 27% and 8.5%, respectively, according to the report.

The yuan earlier this year had already become Asia’s most-active currency for payments to China and Hong Kong, Swift said in the statement. Singapore remains the top clearing center after Hong Kong, it added. IMF staff members said in a report in August that the yuan trails other currencies in metrics the fund tracks in determining the SDR basket.

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 People’s Bank of China 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.