[Correspondent Diary] China Encouraged as Yuan Surpasses Yen

Major Currency Payment Amounts in December Last Year: Dollar, Euro, Pound, Yuan, Yen
Myanmar Military Blocked from Dollar Payments, Possibly Benefiting from Yuan Transactions

[Asia Economy Beijing=Special Correspondent Jo Young-shin] China is the country with the second largest economy after the United States. It has a significant impact on the global economy, so much so that it is called the world's factory. However, the Chinese currency, the yuan, is not well regarded in the international community. This is because it has lower credibility compared to the dollar or euro.

Photo by Xinhua News Agency Capture

Chinese financial authorities have been striving for yuan internationalization for over a decade but have not achieved notable results. They tried to elevate the international status of the yuan through the "Belt and Road Initiative (一帶一路)," but it was not easy. Considering the China risk, no country readily adopted yuan settlements. As a result, the internationalization rate of the yuan has remained almost stagnant.

China's state-run Xinhua News Agency published an article titled "Chinese Yuan Surpasses Japanese Yen." Citing data from the Society for Worldwide Interbank Financial Telecommunication (SWIFT), Xinhua reported that as of December last year, the yuan overtook the yen to rank 4th in international settlement currency rankings. Xinhua stated that the Chinese yuan has become the world's 4th most used currency.

According to Xinhua, as of December, the ranking of major currency settlement amounts was led by the US dollar at 40.51%, followed by the European Union (EU) euro and the British pound at 36.65% and 5.89%, respectively. During the same period, the Chinese yuan accounted for 2.7%, surpassing the Japanese yen's 2.58% to take 4th place. Xinhua emphasized that this was the first time since August 2015 that the yuan's overseas settlement amount exceeded that of the yen.

Regarding this, Wang Chunying, spokesperson for China's State Administration of Foreign Exchange, said, "Since the expansion of capital market opening in 2017, more than $700 billion of overseas funds have flowed into China's bond and stock markets, indicating great growth potential for China's financial market. Given that the yuan has high investment value going forward, the proportion of yuan settlements can increase further."

Zhou Maohua, an economist at China Guangda Bank, said, "The proportion of yuan in the international settlement market does not correspond to China's economic scale and trade volume," adding, "As the internationalization of the yuan steadily progresses, its status will continue to rise."

Meanwhile, in early December last year, China and Myanmar agreed to use the yuan as the official settlement currency in border trade. Due to US sanctions following the coup, Myanmar's military government halted dollar settlements and, as a last resort, decided to use the yuan as the official settlement currency instead of the dollar.

The two countries agreed to initially settle 2 billion yuan (310 million dollars) on a trial basis. The increase in the yuan's international settlement ratio in December last year is likely due to transactions with Myanmar. However, if the political situation in Myanmar stabilizes, the proportion of yuan international settlements may decline again.