Use of the Yuan in International Settlements Has Sharply Decreased
The use of the yuan in global payments sharply decreased in September, writes Bloomberg citing transaction data collected by SWIFT.
The share of transactions involving the Chinese currency declined to 3.6% in September, which is 1.1% lower than the previous month. The yuan’s market share reached a record high of 4.7% in July.
Analysts are unsure what could have been the main factor behind the decrease, but some note the easing of pressure on the yuan’s exchange rate, which was intense in the first half of the year. The yuan strengthened for the third consecutive month in September and briefly reached the mark of 7 yuan per dollar, as investor sentiment toward China’s economy improved amid a series of stimulus measures to support growth.
“After the pressure on the yuan eased, companies might have felt less inclination to use settlements in the local currency and perhaps started using their dollar reserves,” said Ken Cheung, chief Asian currency strategist at Mizuho Bank. “A precise conclusion regarding the cause, as well as the sustainability of the decline in the yuan’s share, remains unclear without additional data.”
The Chinese currency was trading at around 7.12 yuan per dollar on Thursday.
Global banks use SWIFT to manage interbank currency transactions. China is increasingly promoting its currency in global trade, accelerating this process due to the imposition of U.S. sanctions against Russia.
According to Zhaopeng Xing, senior China strategist at Australia & New Zealand Banking Group, the decrease may be related to a reduction in so-called swap deals in the debt market, which are popular among international investors.
“After the Federal Reserve began an easing cycle, pressure on the yuan decreased, and China introduced large-scale stimulus packages, and such transactions declined in September,” he said. The expert expects that the yuan’s market share will stabilize in the next few months.