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.
European renminbi payments double, with Britain and Germany leading way
European efforts to attract more yuan business are beginning to deliver fruit, with yuan payments exchanged with mainland China and Hong Kong more than doubling in the past year.
The robust growth was mainly from countries that have been the most active in lobbying for favourable policies from Beijing, including Britain, France, Germany, Luxembourg and Switzerland, according to a monthly report released by global transaction services organisation Swift on Tuesday.
The value of yuan payments surged 123.6 per cent year on year in Britain last month and 116 per cent in Germany. Switzerland ranked third, followed by France and Luxembourg.
In total, Europe accounted for 10 per cent of global yuan payments in July, Swift said. It did not provide a comparable percentage for a year ago.
"It shows businesses are seizing the opportunity presented by China's currency liberalisation programme to deepen their commercial relationships in the world's second-largest economy," said Vina Cheung, HSBC Holdings' global head of renminbi internationalisation, payments and cash management.
"It also shows government efforts to build hubs for [yuan] trading and investments in Europe are starting to bear fruit."
One shift mentioned by Swift was a sizeable amount of yuan payments were conducted between entities outside mainland China and Hong Kong.
"For most of these European hubs, China remains the main trading partner in [yuan]," it said. "However, there seems to be a noticeable shift in business for some countries like Luxembourg, with an increasing share of truly offshore flows."
Clearing banks have been set up in London and Frankfurt in the past year, while Paris and Luxembourg struck deals with the People's Bank of China in June to set up clearing banks in the coming months.
Meanwhile, London, Paris and Frankfurt were each awarded 80 billion yuan (HK$100.6 billion) of investment quota under the renminbi qualified foreign institutional investor scheme, which allows eligible foreign investors to buy onshore bonds and equities.
Switzerland also signed a bilateral currency swap agreement with the PBOC and obtained a quota to invest in the country's interbank bond market last month.
Globally, the value of yuan payments grew 3 per cent month on month in July. The yuan remained the seventh most-used global payment currency, accounting for 1.57 per cent of the transactions. The top six are the US dollar, the euro, the British pound, the yen, the Australian dollar and the Canadian dollar.