China's Renminbi Surpasses Yen as Global Payment Currency, Amidst Economic Shifts and Geopolitical Dynamics

China's renminbi has surpassed Japan's yen as the fourth most-used currency in global payments, according to figures released on Wednesday by international payment platform Swift. The renminbi's share of global payments rose to 4.6 in November from 3.6 in October, marking its first time overtaking the yen after almost two years.

As China's economic growth slows and concerns about liquidity issues in its property sector loom large, analysts believe that Beijing will likely welcome this latest gn for the renminbi a move Beijing's broader effort to reduce risks associated with dollar dominance in global finance.

This development comes as the renminbi has been one of the worst-performing currencies globally this year, losing about 3.5 agnst the US dollar since the start of the year due to sluggish Chinese growth and ongoing concerns around the property sector.

Analysts suggest that several positive factors have bolstered China's currency in international use throughout the year, with November's figures possibly indicating a slow but rising trend for renminbi's share within Swift payments transactions. The key driver behind this recent gn lies in the contrasting interest rate environment between China and Western countries; while Beijing leans towards loosening monetary policy amidst elevated US Federal Reserve rates.

The lower Chinese interest rates have resulted in foreign investors withdrawing from China's onshore bond market, but at the same time, they've made renminbi more attractive for financing trade with the world's second-largest economy. Currently, China's benchmark one-year loan prime rate stands at 3.45, significantly below the US federal funds rate floor of 5.25.

The attraction of lower Chinese rates is particularly evident in Swift figures tracking the renminbi's share of trade finance, which increased to 5.7 from 5.1 over the same period, pushing it ahead of the euro for the first time since September and placing it as the second most-used global currency behind sterling and the dollar.

Analysts attribute this rise in part to geopolitical factors resulting from Western sanctions on countries like Russia, which have increased interest in alternatives such as renminbi for trade settlements.

Moreover, the growing importance of China's economy in global trade flows may be accelerating the adoption of its currency, according to analysts. The acceleration of payments in renminbi is partly a reflection of the geopolitical situation we're seeing, sd Mansoor Mohi-uddin, chief economist at Bank of Singapore.

Additionally, there is an increase in trade settlements within Asia and with countries highly dependent on Chinese demand, which has also played a role in this uptick. We see an increase in settlements within Asia and with other economies that have high dependency on Chinese demand, sd Vitaliy Katsenelson, FT Channels contributor.

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In summary, China's renminbi has achieved a significant milestone by surpassing Japan's yen in global payments transactions. This development is largely attributed to lower interest rates that make renminbi more attractive compared to the US dollar and the euro. As Beijing continues its efforts to reduce risks associated with dollar dominance, this might mark a turning point for China's currency as it gns importance on the global stage amidst changing geopolitical dynamics.

includes references from a variety of sources including The Financial Times Ltd., Vitaliy Katsenelson’s contribution via FT Channels, and analysis by leading economists like Mansoor Mohi-uddin. All content is subject to self-regulation under the FT Editorial Code of Practice.
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