RMB breaks into the top five as a world payments currency

The Chinese yuan's entry into the world's top five payment currencies, overtaking the Australian dollar, was "an important milestone" in the renminbi's transition into a global currency, said interbank transfer outfit SWIFT.

""It is a great testimony to the internationalisation of the RMB and confirms its transition from an 'emerging' to a 'business as usual' payment currency," said Wim Raymaekers, Head of Banking Markets at SWIFT, in a statement.  

Data released by SWIFT shows that in November the Chinese yuan overtook the Canadian and Australian dollars as a global payments currency. It had spent nearly a year waiting in the wings at the number seven spot, after jumping up from its 2013 position of 13th place with a share of 0.63 per cent.

The RMB then reached a record high share in December of 2.17 per cent in global payments by value, close behind the Japanese yen, which has a share of 2.69 per cent.

This rise in activity has occurred in parallel with an expanding series of cross-border currency clearing arrangements.

Raymaekers said the rise of various offshore RMB clearing centres around the world, including eight new agreements signed with the People's Bank of China in 2014, was an important driver fuelling this growth.

SWIFT data shows that global RMB payments increased in value by 20.3 per cent in December 2014, while growth for payments across all currencies was 14.9 per cent.

RMB internationalisation consists of a three-stage process: The first two stages are trade and investment, followed by the use of the RMB as a reserve currency in the longer term. The conditions are presently ripe for China, as its expansive development has led to the ongoing rise of the currency's cross-border settlement.

In 2014, 12 cities (including London and Sydney) established offshore RMB offices. Benefits of the process include the provision of a strategic opportunity for Chinese banks, as they further develop their international payments clearing businesses; increased capacity for Chinese companies to use the RMB in cross-border trade settlements; and the facilitation of smoother, more profitable business relations between foreign companies and Chinese enterprises.

The Peoples Bank of China has set up RMB clearing arrangements with ten countries and regions and entered into currency swap agreements with 28 central banks. Switzerland is the latest to join in, signing up last week.