• Renminbi series: yuan’s share in global payments declines in June Amid trade war

    Source: FxWire Pro - Commentary / 15 Aug 2018 02:25:50   America/New_York

    After steadily losing its attraction since 2015, the Chinese yuan seems to be recovering in terms of its share in the global payment system, according to a report by Swift payment system. As an effect of economic stagnation, uncertainties surrounding high levels of domestic debt, higher volatilities in its domestic markets, surprised devaluations of the yuan in August in 2015, large depreciation last year, and due to ongoing weakness in the yuan, it has been losing its stature in the global payment system. The happening was in contrary to the popular expectations that after inclusion of the yuan in International Monetary Fund’s (IMF) Special Drawing Rights (SDR) basket will increase its popularity in global payments. IMF officially included yuan into its SDR basket in 2016.

    Several of major global institutions such as the Bank of International Settlements (BIS) have warned against the non-performing assets in the banks of China, especially on how highly leveraged economy could call forth a crisis.

    Rise of the yuan:

    Yuan rose sharply into prominence post-financial crisis, which finally led IMF to recognize its claim to be included in SDR basket.

    • Back in January 2012, Yuan first entered among the 20 most used currency in transactions, accounting for just 0.25% of all transactions.
    • And in January 2013, Yuan rose to rank 13th among currencies most used for global payments, accounting for only 0.63% of all transactions. By January, 2014, it rose further to 7th position, surpassing currencies like Swiss Franc, Hong Kong Dollar, accounting for 1.39% of all global FX transactions.
    • According to data from SWIFT, by August 2015, Yuan’s rank improved to fourth surpassing Japanese Yen and accounting for 2.79% of all global transactions.

    Decline in popularity –

    Surprised devaluation of Yuan in August and fear of hard landing is doing the damage to the yuan, whose rank is slipping in currency payment system, according to SWIFT data.

    • After Surpassing Yen by August, 2015, the yuan’s position slipped to fifth after USD, EUR, GBP and JPY, accounting for 2.31% of all transactions.
    • According to data in March 2016, Yuan’s share in global transactions dropped to lowest since October 2014 to 1.76 percent. In June, it was 1.72 percent.
    • In August 2015, the yuan was the fourth most used currency in the world in global transactions, it now ranks as sixth.
    • According to an October 2016 report from SWIFT, the yuan accounted for 1.67 percent of global transactions, which is the weakest level since October 2014, when it accounted for 1.59 percent of all transactions.
    • According to SWIFT data, in December yuan accounted for 1.68 percent of all transactions, which is more than 15 percent lower, compared to the previous year.

     

    • According to data from Swift that includes February 2017, the share of the Chinese currency in the global system has risen to 1.84 percent. However, It still was the sixth most used currency and far away from challenging dollar’s global dominance.  US dollar was used in 41 percent of all transactions far ahead of euro’s 32 percent share. The pound was used in 7.4 percent cases and the Japanese yen accounted for 3.3 percent transactions. Yuan was able to beat yen back in August 2015. The Canadian dollar remains the fifth most used currency with 1.89 percent share.
    • According to numbers from Swift, Yuan’s share of international transactions fell to the lowest level in close to four years in October. It accounted for just 1.46 percent of global transactions compared to 39.47 percent for the USD, 33.98 percent for the euro, 7.71 percent for the pound, 2.92 percent for the yen, 1.63 percent for the Swiss franc, and 1.6 percent for the Canadian dollar. Aussie ranked eighth, behind yuan with 1.43 percent share of transactions.

    The Reversal:

    • According to data available from Swift, Yuan’s share in international transactions picked up in December from October low of 1.46 percent, which was the lowest level since 2014. In December 2017, the Chinese yuan accounted for 1.61 percent of all global transactions. Dollar, on the other hand maintained its dominance with 39.85 percent share. The single currency saw a sharp comeback with 35.66 percent share. Yuan is now the fifth most used currency, behind the pound (7.07 percent), and the Japanese yen (2.96 percent).
       
    • According to reports from Swift, the yuan’s share in global payment system rose further in January 2018 to 1.66 percent. However, it remains far from challenging the dollar, which remains the preferred currency for transactions with 38.53 percent share. The euro’s share declined to 32.75 percent in January 2018 from 35.66 percent in December. Yuan is now the fifth most used currency, behind the pound (7.22 percent), and the Japanese yen (2.80 percent).
       
    • However, yuan ranked 8th most used currency when intra-Eurozone payments excluded with 1.07 percent share.

    February 2018:

    • Swift reports, that yuan’s share in global payments declined in February to 1.56 percent compared to 1.66 percent in January, which pushed it to the seventh position. The dollar remains the preferred currency for transactions with 38 percent share. The euro’s share rose to 34.29 percent in February 2018 from 31.47 percent in January. Yuan is now the seventh most used currency, behind the pound (7.34 percent), the Japanese yen (3.29 percent), the Swiss franc (1.64 percent), and the Canadian dollar (1.57 percent). Yuan’s share declined to 1 percent when intra-Eurozone payments excluded.

    March 2018:

    • According to Swift report, the yuan’s share in global payments rose in March to 1.62 percent compared to 1.56 percent in February, which pushed it higher to the sixth position. The dollar remains the preferred currency for transactions with 39.45 percent share. The euro’s share rose to 34.55 percent in March 2018 from 34.29 percent in February. Yuan is now the sixth most used currency, behind the pound (7.09 percent), the Japanese yen (3.50 percent), and the Canadian dollar (1.7 percent). Yuan’s share declined to 0.98 percent when intra-Eurozone payments excluded.

    April 2018:

    • According to Swift report, the yuan’s share in global payments rose in April to 1.66 percent compared to 1.62 percent in March, which helped it maintain its sixth position. The dollar remains the preferred currency for transactions with 39.21 percent share. The euro’s share marginally declined to 34.32 percent in April 2018 from 34.55 percent in March. Yuan is now the sixth most used currency, behind the pound (7.41 percent), the Japanese yen (3.47 percent), and the Canadian dollar (1.71 percent). Yuan’s share rose to 1.03 percent when intra-Eurozone payments excluded, which puts it in the eighth position behind USD, Euro, British pound, Japanese yen, Canadian dollar, Australian dollar, and Swiss franc.

    May 2018:

    • According to Swift report, the yuan’s share in global payments rose in May to 1.88 percent compared to 1.66 percent in April, which forwarded its rank by one notch to fifth. The dollar remains the preferred currency for transactions with 39.40 percent share. The euro’s share marginally declined to 34.19 percent in May 2018 from 34.32 percent in April. Yuan is now the fifth most used currency, behind the pound (7.45 percent), and the Japanese yen (3.54 percent). The Canadian dollar saw its position slip to sixth (1.64 percent). Yuan’s share rose to 1.16 percent when intra-Eurozone payments excluded, which puts it in the eighth position behind USD, Euro, Japanese yen, British pound, Canadian dollar, Swiss franc, and Australian dollar.

    June 2018:

    • According to the Swift report, the yuan’s share in global payments declined in June to 1.81 percent compared to 1.88 percent in May, ranking it as the fifth most used currency in global payments. The dollar remains the preferred currency for transactions with 39.35 percent share. The euro’s share marginally declined to 33.97 percent in June 2018 from 34.19 percent in April. Yuan is now the fifth most used currency, behind the pound (7.44 percent), and the Japanese yen (3.60 percent). The Canadian dollar’s position is sixth (1.77 percent). Yuan’s share declined to 1.10 percent when intra-Eurozone payments excluded, which puts it in the eighth position behind USD, Euro, Japanese yen, British pound, Canadian dollar, Swiss franc, and Australian dollar. Despite speculation that the trade war might weaken the dollar in reducing its importance as a global preferred currency, however, there are no signs in that direction yet.

     

     

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