Caixin
Mar 01, 2023 09:28 AM
ECONOMY

Yuan Popularity Grows as Go-To Currency for International Settlements With China

China’s yuan is increasingly becoming a go-to currency for international settlements, with 42.1 trillion yuan ($6.1 trillion) worth of the country’s cross-border payments and receipts using the redback in 2022, up 15% from the previous year and marking the fifth straight annual increase.

Almost half of the total value of China’s cross-border payments and receipts last year was settled in yuan, the People’s Bank of China said in a February report.

The share of yuan settlements in the total value of goods trade and foreign direct investment reached 18% and 70%, respectively, both hitting new highs in recent years, according to the report.

 

The yuan has been growing in popularity as a currency for trade and investment settlements in recent years, helped by a concerted effort from Beijing to increase its international use in a world dominated by the U.S. dollar.

In December, President Xi Jinping said in a meeting with Gulf nations that China would work with them to start using yuan for settlements of oil and gas trades in the next three to five years, which analysts said could affect the longstanding petrodollar system.

In March last year, Baoshan Iron and Steel Co. Ltd. (600019.SH), the listed arm of the China’s largest steelmaker, told investors that about 6% of the company’s 2021 iron ore purchases from overseas were settled in yuan and that it aimed to increase the proportion to 10% in 2022.

Meanwhile, Russia and Southeast Asian countries are increasingly using the Chinese currency to settle imports and exports.

Western sanctions on Russia following its invasion of Ukraine last year have accelerated Russian companies’ adoption of yuan as the currency for cross-border business, as they cut their dependence on the U.S. dollar. In September, Gazprom PJSC, a Russian state-run gas giant, signed an agreement with China National Petroleum Corp. to settle half of their transactions in yuan and the other half in rubles.

China’s steady trade relationships with the 10 member states of the Association of Southeast Asian Nations can help promote trade settlements in yuan, analysts said.

The Standard Chartered Renminbi Globalization Index, a monthly measure of the use of the Chinese currency both across borders and in offshore markets, jumped 26.6% in 2022, the largest annual increase since 2018. The rise was mainly driven by an uptick in the total issuance of offshore yuan-denominated bonds, which grew 34% to 416 billion yuan last year, Standard Chartered analysts said in a report last month.

Zhang Ziyu and Kelsey Cheng contributed to this report.

Contact reporter Zhang Yukun (yukunzhang@caixin.com) and editor Jonathan Breen (jonathanbreen@caixin.com)

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