Yuan’s Payment Share Drops to 2014 Low as Depreciation Quickens

  • Share of global transactions was 1.72% in June, Swift says
  • Exchange rate posted biggest quarterly decline on record

The yuan’s share of global payments shrank to the least in two years as the currency’s depreciation pressures undermined China’s efforts to expand its global use.

The Chinese currency accounted for 1.72 percent of transactions in June, the smallest portion since October 2014, according to the Society for Worldwide Interbank Financial Telecommunications. Like in May, the yuan was ranked sixth, after the U.S. dollar, euro, pound, yen and Canadian dollar.

The yuan’s share has been on the decline since peaking last August as sustained weakness made it less appealing to hold on to. The exchange rate posted its biggest quarterly decline on record in the three months through June on speculation authorities were seeking further losses amid a slowing economy.

"When people see pressure on the yuan intensifying and expect depreciation in the second half, naturally they won’t want to hold as much," said Ryan Lam, Hong Kong-based head of research at Shanghai Commercial Bank Ltd. "It’s hard for the share to rise because though the currency has stabilized, the market still thinks there’s room for further depreciation."

The yuan rose for a third day to trade at 6.6755 against the greenback as a stronger fixing fueled speculation policy makers want to stabilize the currency after it fell beyond 6.7 for the first time since 2010 on Monday.

China’s falling trade volumes may also have contributed to the drop in the yuan’s share as trade settlement makes up a big part of such payments, Lam added. Another factor is stricter capital controls, said Zhou Hao, an economist at Commerzbank AG in Singapore. Since last August’s shock devaluation, the nation has made it harder to take money out of the country in order to curb outflows.

China has taken several steps to internationalize the yuan. It has succeeded in getting approval for it to be included in the International Monetary Fund’s Special Drawing Rights, set up clearing banks around the world and accelerated the opening of onshore markets. Still, continued depreciation has taken a toll on the currency’s global appeal. Yuan deposits in Hong Kong, the largest offshore hub, dropped to a 2 1/2-year low in April, before rebounding slightly in May.

"As renminbi growth is linked to China’s economic activity, data suggest that the volatility in the Chinese market and the slowdown of the Chinese economy are likely factors that have impacted offshore renminbi usage this past year," Alain Raes, chief executive of Asia Pacific and EMEA at Swift, said in a statement that referred to the yuan by its official name. "On a positive note, key initiatives, such as the progress of China’s new Cross border Inter-Bank Payments System (CIPS) and the opening of new offshore clearing centers, sets a solid foundation for future growth."

Before it's here, it's on the Bloomberg Terminal.