China’s Yuan Is Quietly Gaining Ground
Chinese assets have had a terrible year—but China’s currency is gaining ground as an international payments option. The yuan’s status as a global currency still faces a huge obstacle in the form of China’s own capital controls. Even so, rising willingness to conduct trade in yuan could help insulate China’s economy, at least to an extent, in the event sanctions were imposed in a hypothetical future conflict with the West.
It also could become a source of structural support for the yuan itself, even assuming weaker-than-expected Chinese growth in the years to come. The headline numbers are eye-opening. China’s cross-border yuan settlement for merchandise trade has more than doubled, on a monthly basis, since mid-2020—and is now equal in value to over a quarter of China’s top-line goods trade, official figures from the central bank and Commerce Ministry show.
That is up from roughly 13% in 2019, and takes the ratio back to where it sat in late 2015—before China’s surprise yuan devaluation and tighter capital controls knocked back the previous big push for yuan internationalization. In October, 3.6% of international payments globally were made in yuan, according to data from Swift, the international financial-messaging service. That was up from less than 2% in January, and marginally below September’s 3.7%, which was a record high.
And the real number may be higher, since some yuan transactions—particularly any involving U.S. sanctioned entities—wouldn’t be conducted using Swift. Much of this is the Russia effect.
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