August 2015 was a decisive month for the Chinese currency because of the actions of the People’s Bank of China. That is why the latest SWIFT RMB tracker report was keenly anticipated.
The move by the PBoC was a huge factor in determining the importance of the RMB on the global currency stage. The SWIFT tracker shows that the RMB made it to the top four of world payment currencies in August, whereas the number of FX transactions with the yuan surged to more than 1 million during the month.
The yuan overtaking the yen
According to SWIFT data, the RMB has entered the top four of world payment currencies in August 2015, overtaking the Japanese Yen by value. Just three years ago, in August 2012, the RMB ranked #12 with a share of 0.84%. In August 2015, the RMB reached a record high share of 2.79% in global payments by value after overtaking seven currencies during the last three years. The Japanese Yen is now slightly lagging behind the Renminbi with a share of 2.76%, so the gap between both currencies is minor.
Overall, global RMB payments increased in value by 9.13% in August 2015, while the growth for payments across all currencies decreased in value by 8.30%.
Global yuan hubs
With regard to handling global payments in Chinese Renminbi, Hong Kong is the world’s largest offshore RMB centre, processing 70.4% of RMB payments. Although more than 100 countries used RMB for payments in August 2015, more than 90% of flows are concentrated in 10 countries, with Singapore processing 24.4% followed by United Kingdom with 21.6%.
In August 2015, more than 1,700 financial institutions made worldwide payments in RMB, marking a 14% rise compared to last year. This also shows that approximately 600 financial institutions use the Chinese currency for payments without a leg with China or Hong Kong.
Letters of Credit
Along with the steady climb as an international payments currency, the Renminbi now has a 9.1% activity share in the global issuance of letters of credit by value, which enhances the RMB’s position as the second most used currency for this purpose. With a share of 80.1%, the USD remains the dominant currency for this type of trade finance instrument when looking at 2015 year-to-date data.
The top three countries using RMB in August 2015 were China, Hong Kong and Singapore, so the business is clearly concentrated in Asia Pacific. Well over 50% of all letters of credit by value are sent by banks between China and Hong Kong followed by nearly 30% flows between China and Singapore.
Forex transactions
SWIFT data shows that in August 2015, the number of foreign exchange (FX) trades in RMB exceeded 1 Million and that RMB FX trading value increased by 50% compared to August 2014. Foreign exchange transactions by value in RMB increased by 20% compared to July 2015, perhaps because of the devaluation of the RMB by the People’s Bank of China. More than 50% of the RMB FX trading activity outside China and Hong Kong is done with the United Kingdom, which is a reflection of the strong position London has in the global FX market. The United States are second with a weight of 11.9%, Singapore is third with 7.7% and France is the first Eurozone country at position #4 with a share of 6.8%. Japan also entered the top five in August, overtaking Switzerland and South Korea.
Angus T.Y. Tsang, Global Head of RMB Internationalisation, HSBC, comments:
“Growing use of RMB globally despite recent market volatility is a strong testament to a truly international currency underpinned by significant cross-border flows with Mainland China. It has now surpassed Japanese yen and become the fourth most commonly used payment currency according to SWIFT. New RMB offshore centres appointed in the past two years will continue to facilitate and drive use of RMB. Outside of Hong Kong, eight offshore RMB centres have recorded double digit year-on-year growth as of August 15.
“HSBC forecasts that use of RMB for cross-border trade with Mainland China will reach 30% and 50% by end of 2015 and 2020 respectively.”
To download the full report, click here.