The Chinese yuan, also known as the renminbi, is already convertible under the current account - the broadest measure of trade in goods and services. However, the capital account, which covers portfolio investment and borrowing, is still closely managed by Beijing because of worries about abrupt capital flows.
Yuan slips in ranking as a world currency
Inbound and outbound yuan payments by entities outside of Hong Kong and the mainland fell to a four-month low in August, as fewer people chose to settle deals using the currency, especially in London and Singapore, according to financial clearing firm SWIFT.
The yuan lost ground to the Thai baht to rank as the 12th-biggest world currency in August, accounting for 0.84 per cent of global payments in terms of value. A month earlier, payments using the yuan hit a record high, pushing it up to the 11th place in the ranking table.
In a push to globalise its currency, the central government has been striving to open its doors wide to foreign trade and encourage trade partners and individual customers to pay in yuan.
Offshore buyers purchasing from suppliers in China, and offshore sellers into the market are now able to pay and receive yuan for their goods much more efficiently after regulators loosened rules.
However, the trend was reversed in August, with the value of payments declining significantly as customer-initiated and institutional payments using yuan outside Hong Kong and the mainland fell to the lowest level by value since April. The value also decreased in Hong Kong and on the mainland.
"The decrease [for the non-China region] was mainly from London and Singapore," SWIFT said, adding that holidays could be an explanation.
"CNY (Chinese yuan) activity had never been so high in the three months before May [due to seasonal factors]."
The US dollar and the euro held onto the top two spots, accounting for 37.93 per cent and 36.48 per cent of the global payments market respectively.
Despite its weaker performance in global payments, the yuan inched up in the global ranking as the 8th most traded currency.
London, the world's biggest centre for foreign-exchange trading, now accounts for 62 per cent of yuan trading conducted outside of the mainland and Hong Kong, up from a 54 per cent share in January.
Its increased market share was mainly at the expense of Singapore. Meanwhile, Switzerland, France and United States all saw slight declines in their market share.