SWIFT’s RMB Tracker Reports Potential for RMB Growth In 2018

China has been attempting to challenge the global hegemony of the dollar with its currency, the renminbi (RMB) for years. The SWIFT RMB Tracker presents a monthly ranking and weighting of the RMB against other currencies in order to track the rate of its internalization.

The RMB Tracker shows that the currency accounted for 1.61% of domestic and cross-border payments in 2017. The report states that whilst RMB growth stalled in 2017, there are numerous potential factors which could see the growth of the currency in 2018.

Historically cross-border payments have been laden with problems such as delays, errors and unclear payments status. SWIFT’s answer to this quandary has been the launch of its global payments initiative (GPI) which is making transactions faster, transparent and traceable.

The Bank of China was one of the first institutions to go live with GPI, and 22 Chinese banks have now adopted the service. The eventual ubiquity of the initiative will enhance the reputation of China as a country that is open and safe for foreign investment.

SWIFT’s RMB tracker points to other factors which contribute to RMB’s potential in 2018. This includes the rise of China’s cashless economy, the globalization of its banking industry and the adoption of the currency by European banks. Further analysis and insight from the report can be found here.

The Belt and Road initiative aims to strengthen trade links between China, Asia, Africa and Europe. In May, President Xi Jinping pledged a further USD124bn of investment; today, over 100 countries and international organizations have joined the initiative.

By connecting China’s provinces to neighboring countries, along with major investment projects in foreign countries like Pakistan and Indonesia, the currency’s status and value are poised grow throughout 2018.

Whilst the uncertainty of regulations could strangle the growth of RMB in 2018, initiatives such as the SWIFT GPI and China’s Belt and Road initiative are set to reshape the way the Chinese banking industry and the RMB are seen around the world in the long term.

With so many factors at play, all eyes are focused on the RMB this year as it takes another step towards its goal of challenging the dollar’s global hegemony.

Loonie increases share of international payments as renminbi slips

The Chinese renminbi dropped to sixth in the international payment ranking in June, according to SWIFT’s RMB Tracker.

The renminbi was overtaken by the Canadian dollar (CAD), commonly referred to as the ‘loonie’, which accounted for 1.96% of international payments to enter the top five most traded currencies. The RMB was marginally behind with a 1.72% share of international payments.

Despite this small hiccup, RMB internationalization remains on track. Over the past three years it has overtaken six currencies – including HKD, CHF and AUD – to increase its share of international payments exponentially.

SWIFT’s RMB Tracker also found that more than 1,200 banks used RMB for payments with China and Hong Kong in June 2016 – up by a fifth in just 12 months. Asia Pacific leads the way with 43% adoption, followed by the Americas at 42% adoption rate. Europe falls behind at 37% and the Middle East and Africa is at 34%.

There was also good news for the United Kingdom, which regained its status as the number one clearing centre after Hong Kong by processing a quarter of all RMB payments (excluding China and Hong Kong).

Overall, SWIFT remains optimistic about the RMB’s journey towards a more international currency. Alain Raes, Chief Executive, APAC & EMEA at SWIFT, explains that the journey towards full internationalisation is a long one, but “the creation of new offshore centres around the world combined with the progress of China’s new Cross Border inter-Bank Payments System (CIPS) will help move the RMB along its path towards internationalisation.”

For more insight and to download SWIFT’s latest RMB Tracker, please click here.

JPY Gains, AUD Falls as China Weakens Yuan

Ilya Spivak, Currency Strategist, at DailyFX, comments:

“China has triggered another sharp burst of risk aversion after devaluing the Yuan by over 0.5 percent at today’s daily fix, marking the largest downward revision since Augusts’ fateful readjustment.  The sentiment-linked Australian Dollar dropped alongside Asian share prices while the safety-linked Japanese Yen outperformed. Cycle-sensitive commodities including copper and crude oil fell while gold and silver traded higher. Chinese stocks were shut down for the day after hitting the limit-down threshold of 7 percent.

 “The consensus interpretation for the markets’ negative response is that Chinese devaluation speaks to a need for emergency stimulus expansion, which implies greater-than-expected malaise in the world’s second-largest economy. Weakening the currency can be seen as a form monetary stimulus however, so one might have expected markets to cheer Beijing’s actions. With that in mind, it seems as though price action reflects a reflexive response drawing surface-level parallels with Augusts’ panic selling rather than a sober evaluation of China’s actions on their fundamental merits.

 “Looking ahead, S&P 500 futures are pointing sharply lower, hinting that risk aversion is aiming to continue in the hours ahead. The economic calendar is relatively quiet, putting the spotlight on Fed-speak as the source of event risk du-jour. Comments from Richard Lacker and Charles Evans, Presidents of the Richmond and Chicago Fed branches respectively, are due to cross the wires.

 “The two policymakers represent the hawkish and dovish extremes of last years’ contingent of FOMC voters. Traders will look to their remarks for clues about the likely 2016 rate hike path. The central bank projected four 25bps increases last month while the markets continue to envision no more than two. Investors’ dovish lean skews volatility risk to the upside for the US Dollar in the event that cumulative commentary strikes a hawkish tone.”