Yuan Overtakes Dollar As China’s Most Used Cross-Border Currency

China passed another milestone in its bid to reduce reliance on the dollar, as yuan usage in its cross-border transactions jumped ahead of the greenback’s for the first time in March.

The local currency’s share of China’s cross-border payments and receipts rose to a record high 48% at the month end from nearly zero in 2010, according to research by Bloomberg Intelligence citing data from the State Administration of Foreign Exchange. The dollar’s share declined to 47% from 83% over the same period, the figures showed.

The ratio is calculated based on the volume on all types of transactions, which includes securities trading through the links between mainland China and Hong Kong’s capital markets. It doesn’t represent transactions used by the rest of the world — the yuan’s share in global payments was little changed at 2.3% in March, according to Swift.

“The rise in yuan usage could be a natural consequence of China opening up its capital account, with rising inflows for China bonds and outflows for Hong Kong stocks,” Stephen Chiu, chief Asia foreign-exchange and rates strategist at Bloomberg Intelligence (BI) research wrote in a note.

The rising share allows local firms to reduce the risks of currency mismatch in transactions, a spokeswoman at the State Administration of Foreign Exchange said at a Friday (April 21) briefing. China will further expand yuan settlement in cross-border transactions, the State Council said in a guideline aimed at boosting foreign trade issued Tuesday.

“Yuan internationalisation is speeding up as other countries seek an alternative payment currency to diversify risks and as the credibility of the Federal Reserve is not as good as before,” said Chris Leung, an economist at DBS Bank. “But at the same time we are still talking about a long way from dollar dominance, and the yuan’s share in global payment might be forever small.”

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