China’s yuan continues to grow as an international currency, central bank says
- ‘We expect more market participants will accept yuan as settlement and payment currency,’ People’s Bank of China says in annual report
- Value of cross-border yuan payments and receipts rose 24.1 per cent in 2019 to 19.67 trillion yuan, it says
“We expect more market participants will accept yuan as settlement and payment currency,” it said.
China is heavily exposed to the US-led Clearing House Interbank Payment System (CHIPS) and the Belgium-based Society for Worldwide Interbank Financial Telecommunication (SWIFT), which means it is vulnerable to US sanctions, such as those imposed on Iran and Russia.
China’s state-owned banks with overseas operations could be the next targets if they are found to have business links to the sanctioned officials.
The central bank report indicated rapid growth in the internationalisation of the yuan in recent years.
The total value of cross-border yuan payments and receipts by banks on behalf of clients rose 24.1 per cent year on year in 2019 to 19.67 trillion yuan (US$2.83 trillion).
The value of global reserves of the yuan rose 1.95 per cent in the year to become the world’s fifth largest, while its share of the foreign exchange trading market was 4.3 per cent.
The report also cited a survey conducted by Bank of China that said 69 per cent of the 3,300 foreign industrial and commercial companies polled planned to use or increase their use of the yuan.
The yuan internationalisation index, released by Renmin University of China last month, rose 13 per cent last year to 3.03 and is forecast to rise to 5 in the first half of this year. But the currency still trails the US dollar at 50.85 and euro at 26.28.
The central bank said it would continue to remove barriers to cross-border use of the yuan, open up financial markets wider to foreign investors and promote the development of offshore yuan markets.
It also forecast the rapid expansion of China’s Cross-border Interbank Payment System, which was launched in 2015 and is now used in nearly 100 countries.
In 2019, it handled 1.9 million cross-border yuan transactions – an increase of 31 per cent from 2018 – while the total amount involved rose 28 per cent to 33.9 trillion yuan.
When its stock market crashed in 2015, China clung to its US dollars
The Beijing-controlled system has 33 direct participants – including HSBC, Citibank, JP Morgan, Deutsche Bank – and 951 indirect participants. Of the overseas indirect participants, which gain access to the system through local clearing banks, 310 are in Asia, 124 in Europe, 37 in Africa and 26 in North America.
Governor Yi Gang said in an interview with Xinhua this week that the momentum of yuan internationalisation was “pretty good”.
“We’ll actively promote overseas use of the yuan and the opening up of capital accounts,” he said.