Renminbi slips to seventh in domestic and global payments as Lunar New Year lull skewed February data

PUBLISHED : Thursday, 29 March, 2018, 3:44pm
UPDATED : Thursday, 29 March, 2018, 9:22pm

The share of the Chinese renminbi (RMB) as a domestic and international payments currency dropped two places, sliding down the global list to rank seventh in February, according to global financial messaging service provider SWIFT.

The decline, which counts customer initiated and institutional payments, to a share of 1.56 per cent was likely influenced by the seasonal effect of the Lunar New Year, SWIFT said on Thursday.

The Swiss franc and Canadian dollar overtook the renminbi during the month with a share of 1.64 per cent and 1.57 per cent respectively.

Hong Kong remained as the top offshore yuan clearing centre by value globally in February at 74.91 per cent, followed by the UK at 6.05 per cent and Singapore at 4.84 per cent, SWIFT said.

Analysts hope that rising global trade friction may actually spur China to accelerate the internationalisation process of its currency and capital account this year.

China’s response to protectionist tariffs unveiled by President Donald Trump has been largely symbolic so far, fuelling speculation that Beijing is seeking to avoid protectionist retaliation.

The renminbi this week rallied to its highest level against the dollar since 2015, signalling that Beijing is willing to tolerate a higher exchange value as a way to put the brakes on export-oriented industries.

In the 1980s, Japan was the rising Asian power challenging US economic prowess. In response to US protectionism, Japanese domestic producers moved up the value-added chain, and shifted some auto production to the US.

Yi Gang, the new governor of the People’s Bank of China, said recently that China will steadily reform and further open its financial sector while putting “equal emphasis” on preventing risks through regulation and supervision.

“History has proved that areas that are more open are more competitive, and areas that are less open are less competitive and see risks accumulating,” Yi said.

China’s liberalisation efforts received a major stamp of approval last week, when it was announced that RMB bonds were to be included in Bloomberg-Barclays flagship Global Aggregate Index.

With the inclusion, China is estimated to command a weight of 5.49 per cent in the index by the end of 2020, the fourth largest. The index weighting means US$140 billion of capital inflows to the onshore bond market in the coming two years, according to AXA Investment Managers analysts Aidan Yao and Shirley Shen.

For Beijing, the approval from a major index operator is likely to encourage further liberalisation of the onshore market and align market infrastructure to global standards, they said.

“We think stars are aligned for Beijing to re-accelerate capital account liberalisation, including a reopening of the outflow channels in the coming months,” Yao and Shen said in a jointly authored research report.