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‘Belt and Road’ bolsters support for RMB as its use in global payments declines

Fewer than two per cent of global payments (in terms of value) are done in renminbi but there are some positive indicators suggesting the RMB is increasingly accepted. SWIFT identified five factors contributing to the Chinese currency's success.

A report by SWIFT has highlighted five key factors in the global success of the renminbi, even though there has been a decline in use of the Chinese currency in international payments. These factors are:

  • the Belt and Road initiative (an initiative launched by the Chinese government in 2013 to improve trade links between Asia, Africa and Europe);
  • China’s Cross-border Interbank Payments System (CIPS);
  • Hong Kong’s role as an essential RMB intermediator;
  • the relaxation of capital market controls; and
  • fintech’s contribution to the last mile of RMB connectivity.

The currency was recently ranked in sixth place in world payments currencies in June 2017, according to the SWIFT RMB Tracker, meaning that the proportion of international currency payments by value in renminbi fell from 2.09 per cent in June 2015 to 1.98 per cent in June 2017. More than 1,900 financial institutions worldwide are using renminbi for payments as of June 2017 but the dollar continues to be the major currency for payments to China. SWIFT says that 98 per cent of payments sent from the US to China by volume are in US dollar, and the RMB’s share of payments remains low for all countries – between 1 and 2 per cent – with the exception of Taiwan, where 15 per cent of payments were made in renminbi.

The report also includes the following key factors that support long-term renminbi internationalisation:

  • promising renminbi growth in South East Asian countries along the Maritime Silk Road;
  • strong increase in renminbi Credit Transfer Payments in value from China to Germany, Poland and the Czech Republic. This is in contrast to substantial decreases from China to the Netherlands, France and Italy;
  • Hong Kong’s continued role as an essential intermediator, increasing its RMB activity share to 76 per cent, while 49.4 per cent of all RMB payments currently transit through Hong Kong; and
  • major Chinese banks are investing in cross-border payments innovation through the SWIFT GPI service. SWIFT GPI provides Chinese banks’ customers with a same-day payment experience around the world. Over 110 banks are part of the initiative, of which 16 in China.

CTMfile take: It seems that the Chinese government - and SWIFT - really want to sell this message of the renminbi being globally accepted and used for international trade. But with fewer than 2 per cent of global payment volumes, the currency is pretty far from posing a challenge to either dollar or euro. It's even slipped from fifth to sixth place between 2015 and 2017.

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