China’s yuan has emerged to become the fourth most-used currency in the world for cross-border payments in August, according to a report published by global transaction services organization SWIFT (The Society for Worldwide Interbank Financial Telecommunication).
For the first time ever, the yuan has moved ahead of the Japanese yen, and rose to its highest ranking ever, despite devaluations from its Central Bank.
There was a “substantial” increase in the use of the Chinese currency in the final week of August, which came on the back end of market volatility, SWIFT said in its report. This was due to concerns over the Chinese economy slowing and Beijing’s devaluation of the yuan, the report added.
The Chinese yuan was used in 2.8 percent in global payments in August, versus 44.8 percent for the U.S. dollar, 27.2 percent for the euro, and 8.5 percent for the British pound.
Over 100 countries used the yuan for payments in August, with over 90 percent concentrated in 10 countries. The bulk of these payments were processed in Singapore (24.4 percent) and the United Kingdom (21.6 percent).
Global payments using the yuan were up 14 percent from a year earlier, and have been provided by over 1,700 financial institutions.
In August 2012 the yuan was twelfth most-used global currency on SWIFT’s list.
China’s devaluation of the yuan was likely a factor that boosted foreign exchange transactions in the currency by value, according to SWIFT. Transactions in the Yuan increased by 20 percent in August from a month earlier.
The yuan recorded its biggest one-day loss in two decades of two percent in August following a surprise evaluation by its Central Bank in a move it said was aimed at reviving faltering exports.
China has been pushing hard for its currency to be included into the International Monetary Fund (IMF) Special Drawing Rights (SDR) reserve basket of currencies. Rivaling the U.S. dollar in the global financial system has been Beijing’s ambition for its currency since 2010, as they have opened up several currency clearing hubs across the globe.
However, in August the IMF postponed the inclusion of the yuan in the SDR basket of currencies, extending the current composition by nine months from December 31. The IMF praised China for progressively devaluing its currency against the U.S. dollar, saying that this would allow the market to play a greater role in determining the exchange rate. However, the IMF said the yuan was still too tightly controlled by the Chinese government.
The report of the yuan moving into fourth place for global currencies payments comes as the IMF prepares to conduct a twice-a-decade review of its SDR basket, which is due by the end of the year.
SWIFT (The Society for Worldwide Interbank Financial Telecommunication) is a Belgium-based global organization that provides services and a standardized environment for global banking communicating that allows financial institutions to send and receive messages about their transactions, the system is used by most international banks. The information the system carries, including payment instructions, is securely exchanged between financial institutions. It began operating in 15 countries in 1973 and is now used by over 9,000 financial institutions in 210 countries and territories.