(CTN News) – In a significant milestone for China’s global economic ambitions, the Chinese yuan has surpassed the euro to become the world’s second-most used currency in SWIFT trade settlements.
SWIFT, the international system for facilitating financial transactions and interbank payments, released data indicating that the yuan’s share in international payments reached 5.8% as of September 2023, up from 4.82% in August. This surge marks the highest market share the Chinese yuan has held in the last five years.
While this is indeed a notable achievement, the US dollar maintains its unassailable dominance in global trade, accounting for 84.15% of international payments in September, up slightly from 83.95% in August.
The euro, which previously held the second spot, has now slipped to third place, with its share decreasing to 5.43% in September from 6.43% in August. Following the yuan and euro, the Japanese yen and the Saudi rial rank fourth and fifth in SWIFT trade settlements.
China’s increasing influence on the world stage, both economically and politically, has played a pivotal role in the yuan’s growing prominence.
The Chinese yuan’s share of global payments may still be modest compared to the size of China’s economy, but it has seen a steady increase from a mere 1.81% approximately five years ago.
The Society for Worldwide Interbank Financial Telecommunication (SWIFT), a Belgian cooperative society, facilitates financial transactions and payments between banks worldwide.
Traditionally, the US dollar and the euro have dominated SWIFT payments, accounting for more than seven out of every ten transactions in 2023.
The yuan’s rise in international trade settlements reflects China’s expanding economic power and persistent efforts to establish the yuan as a global reserve currency.
However, it’s essential to note that the yuan’s share, while growing, is still relatively small when compared to the US dollar’s overwhelming 46.6% market share.
Chinese Yuan’s Historical Background: From Pegs to Prominence
The yuan, China’s official currency, traces its roots back to the late 1800s when it was introduced as the country’s monetary system. A significant development in the yuan’s journey was the currency peg established in 1994, tying its value to the US dollar.
This peg, combined with China’s robust export-oriented economy, has played a crucial role in helping the yuan gain traction in global trade.
China’s determination to internationalize the Chinese yuan has become increasingly evident in recent years. With efforts such as the Belt and Road Initiative (BRI) and the establishment of the Asian Infrastructure Investment Bank (AIIB), China has sought to expand its economic and geopolitical influence across the globe.
The inclusion of the Chinese yuan in the International Monetary Fund’s (IMF) Special Drawing Rights (SDR) basket of currencies in 2016 was a significant milestone in this endeavor.
The recent data from SWIFT indicates a notable shift in the global financial landscape, with the Chinese yuan’s growing prominence signaling China’s increasing role in international trade and finance. As the yuan continues to make strides, its journey towards becoming a global reserve currency is a story to watch, with implications not only for China but for the broader international financial system.