News Flash: Yuan Passes Yen; Now Fourth Most-Used Payment Currency

The Chinese yuan continues to gain stature on the world financial stage, overtaking the Japanese yen to become the fourth most-used currency for global payments.

Bloomberg reports the yuan rose to its highest ranking ever in August, boosting its claim for reserve status.

The proportion of transactions denominated in yuan climbed to a record 2.79 percent in August, from 2.34 percent in July, according to a Society for Worldwide Interbank Financial Telecommunications statement on Tuesday. It was second for global issuance of letters of credit by value with a 9.1 percent share, compared with 80.1 percent for the U.S. dollar.”

The Chinese currency has skyrocketed up the rankings, rising from 35th in 2010 to its current spot at No. 4 today. It was just last November when the yuan gained the No. 5 spot, which we reported earlier this year. And according to one metric, China became the world’s largest economy around the same time.

It’s no wonder the Chinese have been pushing for inclusion in the International Monetary Fund’s Special Drawing Rights basket, currently comprised of the US dollar, euro, yen, and the British pound. The IMF is scheduled to begin its twice-a-decade review of the basket before the end of the year.

According to Bloomberg, Standard Chartered Plc. estimates inclusion of the yuan in the basket could trigger as much as $1 trillion of inflows into the currency.

DBS Group Holdings Ltd. economist Nathan Chow predicted the yuan would surpass the yen this year, and he says he thinks the data looks favorable for the Chinese currency’s inclusion in the SDR basket. “It shows that the so-called devaluation in August, which wasn’t massive in value, hasn’t driven people away from using the yuan,” he said.

China has been going to great pains to elevate the stature of its currency. As Bloomberg put it:

China is trying to increase the yuan’s usage around the world as it looks to reduce the dollar’s dominance of global trade. The People’s Bank of China has appointed yuan-clearing lenders in 10 countries including South Africa and Argentina in the past year and opened the local bond and currency markets to overseas central banks.”