New | Share of Chinese currency slides in global payments
Yuan falls behind Japanese yen in September in Swift system, even as it garners more support for reserve currency status
The yuan came down a notch in the global banking payments last month even as more foreign banks joined the chorus for its inclusion in an elite currency club.
Global yuan payments last month decreased in value by 5.57 per cent, the only currency whose usage dropped. Payment currencies overall grew 7.56 per cent, show Swift data.
The US dollar accounted for the biggest share (43.27 per cent) in global payments, followed by the euro (28.53 per cent), pound (9.02 per cent) and yen (2.88 per cent). Payments through Swift accounted roughly for 15 per cent of the world’s merchandise trade.
The contraction in both share and absolute value owed to a slowdown in yuan-denominated re-invoicing and in import and export volumes and lower sales recorded by local Chinese firms, said Biswajyoti Upadhyay, head of greater China and North Asia, product management, transaction banking, at Standard Chartered.
“Expectation was high back in September that the yuan would further depreciate and the US dollar strengthen. Against such a backdrop, companies were reluctant to re-invoice payments in yuan,” he said.
The launch of the China Cross-border International Payment System (CIPS) early this month, Upadhyay said, would help raise the payment throughput. "But of course, any sustainable uptick in payments will depend on improving business sentiments and increase in trade volumes in China."
The People’s Bank of China amid much fanfare launched in early October the first phase of the CIPS, dubbed a “payment superhighway”.
On Thursday, JP Morgan and Standard Charter issued statements championing the yuan’s case for inclusion.
“The political atmosphere has also turned more supportive to RMB inclusion in the SDR. Most of the top 10 voting members (including the US and Japan) have expressed different degree of support in
recent months, on the condition that RMB meets the technical requirements for SDR inclusion.
“This means that the decision essentially depends on the technical assessment by the IMF staff, which we think will be positive,” JP Morgan chief China economist Haibin Zhu said in a report.
In an even more favourable tone, Standard Chartered said the yuan had met all technical standards.
“We believe the Chinese yuan (CNY) has a more than 90 per cent chance of inclusion in the IMF’s SDR basket at its November review. We think the CNY has met all the technical requirements for inclusion, with the Chinese authorities taking bold steps to accelerate domestic financial reform and capital account liberalisation,” said its currency strategists led by Eddie Cheung.
The support of the two lenders follows similar advocacy by HSBC, which recently said “the renminbi is ticking all the right boxes to be included in the SDR”.
A substantial spread between the two has been highlighted by the IMF as one of the factors that could pose an operational dilemma as sovereign reserve managers need to pick one exchange rate for hedging. That will be one of the many technical issues to be assessed next week.