The renminbi (RMB), more popularly known as the yuan has for the first time surpassed the euro and the yen to take second place behind the US dollar as a global currency facilitating trade and finance. The currency jumped from fourth to second place in the October results.
The statistics were released by the Society for Worldwide Interbank Financial Telecommunication (SWIFT) which provides a network that enables financial institutions worldwide to send and receive information about financial transactions. According to SWIFT, the yuan had a market share of 8.66% in October in terms of letters of credit and collections, while at the beginning of 2012 it accounted for only 1.9%. This suggests that businesses and specifically importers and exporters are increasingly conducting their business in the Chinese currency. The euroâ€™s market share dropped to 6.64% from 7.87% for the comparable period, while the yen now constitutes 1.36%, compared to 1.94% at the start of last year.
While the increase can be attributed to increasing trade in and out of China, the Peopleâ€™s Bank of China, the countryâ€™s central bank, has been busy implementing policies to help increase the flow of the yuan on an international level. For example, last year the bank offered a 2-3% discount on invoices to importers in China as long as they were cleared in yuan. The bank has also widened the band that the currency currently trades in, which has resulted in a jump from 17th to 9th place for the yuan in terms of currency traded on the foreign exchange market. The bank has also recently unveiled plans to benefit foreign investors in the countryâ€™s various free trade zones, and has shown a pull back from intervening in foreign exchange transactions.
The move in the currency has been widely expected as global trade with China has increased. China, which surpassed Japan in 2010 to become the second largest economy, was largely expected to take over the position in the currency standings as well. The country is the largest exporter in the world with reported net exports exceeding $2 trillion in 2012.Â Â
A recent survey conducted by HSBC also shows the currencyâ€™s growing usage by the business community, as almost a quarter of the 700 global businesses with operations in China will accept transactions in yuan by 2015. Their acceptance is also partly because businesses can get better terms and pricing from suppliers and importers who avoid paying fees in currency conversion.
Most of these banking agreements and transactions conducted in yuan are done so in Hong Kong and Singapore. While this suggests growing regional influence, it is also a result of a largely complicated and opaque banking system in Mainland China which leads foreign businesses to secure offshore loans and agreements, and flow capital in and out of banks in those regions. Germany and Australia follow Singapore as the countries with the most contract settlements made through the yuan.
While the rise of the yuan over the euro and yen is significant, the currency is still dwarfed by the US dollar, which has a market share of over 81%. Chinaâ€™s recent policy, however, shows the country is moving to ease controls over its currency, which could further increase its market share.