Yuan Watchers Pessimistic Even as Global Payments Share Rebounds

  • Companies offloading yuan because of depreciation: StanChart
  • Recovery in exports had much to do with increase, BBVA says

China watchers warned that a rebound in the yuan’s share of global payments will probably be short-lived as the currency continues to weaken.

The yuan accounted for 2 percent of transactions last month, up from a two-year low of 1.67 percent in October, according to data from the Society for Worldwide Interbank Financial Telecommunication released Tuesday. The increased usage may be the result of companies’ efforts to reduce their holdings, according to Standard Chartered Plc and Banco Bilbao Vizcaya Argentaria SA.

"When there is strong expectations for the yuan to depreciate, corporates wouldn’t want to hold so much yuan so they may pay the currency to their business partners," said Eddie Cheung, a foreign-exchange strategist at Standard Chartered in Hong Kong. "But this is not sustainable, as other companies won’t want to receive a depreciating yuan for a long time either. China still needs to internationalize the currency and reduce yuan depreciation expectations to boost its share of global payments sustainably."

The yuan’s share has been wavering since peaking at 2.8 percent in August 2015, with the currency’s fortunes taking a hit last month as Donald Trump’s surprise election victory raised concern that he would take protectionist measures against China. The nation’s capital outflows are accelerating and the central bank is selling larger amounts of foreign exchange, Goldman Sachs Group Inc warned as the yuan headed for a 6.6 percent decline this year, the most since 1994.

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. China’s exports gained in November, snapping a seven-month losing streak in dollar terms, as a cheaper yuan aided foreign purchasing. Imports jumped the most in two years.

A net $69.2 billion exited the nation in November, compared with a monthly pace of around $50 billion since June, Goldman economists led by Hong Kong-based MK Tang wrote in a note Friday. Money has been leaving in yuan payments for 14 consecutive months, while the central bank’s yuan positions have slumped the most since January.

“The rising share of yuan in global transaction in November is mainly due to the rebound of China’s imports and exports,” said Xia Le, a Hong Kong-based economist at BBVA. “The acceleration of depreciation in November also encourages overseas yuan holders to pay yuan when trading with China, as they are eager to get rid of their holdings.”

Market Moves:

  • The offshore yuan was trading 0.23 percent weaker at 6.9486 a dollar as of 5:19 p.m. in Hong Kong, while the onshore rate was little changed
  • Government bonds extended a selloff, with the 10-year yield rising 10 basis points to 3.5 percent in thin trade
  • The seven-day repurchase rate fell 9 basis points to 2.57 percent, weighted average prices show

— With assistance by Robin Ganguly, Tian Chen, and Emma Dai

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