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 percent in August, from 2.34 percent in July, according to a Society for Worldwide Interbank Financial Telecommunications (SWIFT) statement on Tuesday. It was second for global issuance of letters of credit by value, with a 9.1 percent share, compared with 80.1 percent for the U.S. dollar.
The report comes as the International Monetary Fund (IMF) prepares to conduct a twice-a-decade review of its Special Drawing Rights (SDR) basket, which currently comprises the U.S. 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 People’s Bank of China (PBOC) on Aug. 11 devalued the yuan reference rate by 1.9 percent and switched to a more market-oriented fixing, spurring a 2.6 percent 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.”
The dollar, euro, and British pound remained the top three currencies, with the share of payment volumes at 45 percent, 27 percent, and 8.5 percent, 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. 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 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.