Will Chinese Yuan Dominate Swift?
The Chinese yuan has overtaken the Japanese yen in the ranking of currencies used on the Swift system. Facts and scenarios
The latest data from the international payments platform Swift confirm the ongoing earthquake in global trade, with the Chinese currency displacing the yen from fourth place for the first time in the last two years, although still at a safe distance from the dollar it holds firmly in the lead. Here is what the Financial Times writes about a trend in which a variety of factors contribute, starting from low interest rates in China to Western sanctions against Russia which encourage bad intentions to escape from the retaliatory power of US finance by taking refuge in the renminbi.
Swift data for November
For the first time in two years, the renminbi has overtaken the yen in global payments, taking advantage of low interest rates in China which have increased the use of its currency to finance trade with the world's second largest economy.
Data recently disclosed by the international payments platform Swift and reported by the Financial Times show that the share of global transactions carried out in renminbi rose from 3.6% in October to 4.6% in November, thus overtaking the yen and becoming the fourth largest currency most used in the world behind the pound, the euro and the dollar.
Party in Beijing
This development, underlines the City newspaper, will obviously be welcomed by Beijing, where the aim has long been to consolidate the international status of the renminbi in order to mitigate the risk represented for the country by the dollar's dominance in global finance.
Interest rate factor
Many economists underline that the result that emerged from the Swift data can be attributed to those low interest rates which, while they are causing strong outflows of Chinese investors from the Chinese bond market, have also made the renminbi more competitive in terms of trade finance.
And it is precisely the Swift data on trade finance that shows how the share of the renminbi went from 5.1% of the October total to 5.7 the following month, pushing the currency into second place ahead of a euro which for the first time loses its advantage against the renminbi. Both currencies, in any case, are well behind the dollar, which represents over 80% of the total.
Standard Chartered's opinion
As Kelvin Lau, senior economist for China at Standard Chartered, explained to the Ft, "this new phenomenon of the renminbi seen as a low interest rate currency opens the door to an increased role of the renminbi in trade finance".
Geopolitical factors. And geoeconomic
But, as the chief economist of the Bank of Singapore Mansoor Mohi-uddin pointed out to the same newspaper, there are also geopolitical factors at play and in this case those Western sanctions against Russia which are encouraging many countries that are refractory to respect them and bypass the dollar and Swift to resort to the renminbi instead.
But this last factor, explained to the Ft Carlos Casanova, senior economist for Asia at UBP, cannot alone justify an acceleration of international payments made with the Chinese currency which refer more than anything else to the physiological increase of the latter all within a continent like Asia whose economies are heavily dependent on Chinese demand,
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/mondo/cina-yuan-swift/ on Sat, 06 Jan 2024 06:46:00 +0000.