The Chinese yuan has surpassed the US dollar in China’s cross-border payments for the first time in history, according to banking giant Goldman Sachs.
The yuan’s share of cross-border settlements surpassed the dollar and hit an all-time high in March, says Goldman, citing data from China’s State Administration of Foreign Exchange (SAFE).
The big uptick was mostly fulled by foreigners trading renminbi assets, according to the bank.
Goldman says that China has gained market share and made significant progress in functioning as a medium of exchange in global markets. However, the yuan is still not truly competing with the dollar in many ways.
“But progress appears slow in other respects. While China is becoming increasingly important in global goods, services, and financial markets, the world’s second-largest economy still has capital controls in place and the renminbi is not entirely freely tradable, which could limit its progress when it comes to being a ‘store of value’ and ‘unit of account.’
The U.S. dollar is still the dominant currency in international payments, accounting for 43% in May, according to SWIFT. Some 32% of international payments were in euros, 7% in British pounds, and 3.2% in Japanese yen.”
The bank’s research suggests that payments linked to portfolio investments, like China’s domestic stock and bond market have helped drive the use of the yuan.
Yuan-based trading is starting to pick up in Hong Kong, which the bank refers to as an “offshore center for renminbi.”
“When it comes to store of value, China’s currency is still little used. In international bond markets, debt securities denominated in renminbi were only around 0.7%, according to Bank for International Settlements data, in comparison with 0.4% 10 years ago, Wei writes. Reserves denominated in China’s currency accounted for around 3% of global reserves, higher than the 1% in 2016 but still low in absolute levels.
At the same time, a wide range of renminbi-denominated assets are available in Hong Kong, the offshore center for renminbi, for global investors: these include bonds, investment funds, commodity-linked products, ETFs, real estate investment trusts, equities, and insurance products.”
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