Are Yuan Internationalization and Financial Reform Colliding Trains?

After having become the largest export engine as well as the second-largest economy and foreign direct investor globally, China looks ready to internationalize the use of its currency to levels that would have looked impossible only a few years ago.

Propelled by the global financial crisis, the yuan's journey started with the establishment of bilateral currency swaps mainly for trade or precautionary purposes until quite a pervasive use for trade settlements with China developed. In this vein, the share of trade invoiced in yuan has moved from virtually zero in 2010 to becoming the world's No. 2 trade finance currency, replacing the euro; some 8.7 percent of letters of credit and collections are denominated in yuan today compared with 6.64 percent in euro. More generally, the use of yuan to settle international trade now accounts for 22 percent of China's total trade, and the yuan is one of the top five payment currencies globally.