China’s Renminbi (CNY) Is Now Tracking as the Eighth Most Used Form of Payment
The Chinese look forward to their lunar new year in February 2014, their currency is surging. The end of 2013 showed the rising popularity of China’s renminbi (ISO currency code CNY, for Chinese Yuan Renminbi), which surpassed 22 other countries’ currencies to rank as the eighth most used currency for wholesale and retail payments in the world. This rise has been attributed to the renminbi’s appreciation, growing trade volumes, and attractiveness as a conduit for portfolio investments.
According to the Society of Worldwide Interbank Telecommunication (SWIFT), the fact that between November and December of 2013 other currencies grew 7% while the renminbi grew 15% suggests that the use of the Chinese currency is becoming business as usual for the world’s financial institutions and large corporates. The renminbi’s 2% appreciation against the U.S. dollar in 2013 has also boosted the currency’s attractiveness as a store of value and improved its liquidity. Some 74% of renminbi payments is concentrated in Hong Kong, where the renminbi is readily available to settle trade and retail transactions from around the world. But the United States, United Kingdom, Singapore, and Taiwan are also seeing growth in renminbi payments. In absolute terms, however, the U.S. dollar and the euro are still dominant, accounting for 39.5% and 33.2% respectively of all payment transactions globally compared with the renminbi’s 1.1%. The Chinese currency is gaining fast against the Swiss franc, the seventh most used currency in the world.
The main advantages of trading directly in renminbi rather than a settlement currency such as the U.S. dollar are that it cuts down on uncertainties and reduces the cost of doing business as both wholesale and retail payment volumes continue to grow in China. It reduces uncertainties because renminbi transactions are not subject to major currency swings as are the U.S. dollar and the euro and the currency has been relatively stable for the last few years due to the strength and size of China’s foreign currency reserves. Many bankers in the Asia-Pacific region believe that the renminbi will continue to solidify its position as a global currency and will become a fully convertible currency within the next five years. Partial convertibility remains the norm today because the renminbi is limited to certain types of transactions that are permitted by the Chinese government.
In 2014, Mercator Advisory Group will continue research on topics such as the rise of Alibaba and Alipay not just in their home market but as they expand in the United States and globally as well as emerging technology topics in the foreign exchange retail and wholesale payment space. With China’s continued growth of its foreign exchange reserves, newer emerging technology tools to initiate currency trades, and the strengthening of the renminbi, the “Year of the Horse” may turn out to make this currency even stronger than the lucky eighth (the number 8 being considered auspicious in China) position it currently holds as a form of payment.
To read more about trends in China’s payment systems, stay tuned for new research on Alibaba and Alipay to be published in February 2014 by Mercator Advisory Group’s Emerging Technologies Advisory Service
as well as forthcoming coverage in our International Advisory Service