FameEX Hot Topics | Yuan Overtakes Euro to Become Second Most Popular Currency in Trade Finance Markets, Shifting SWIFT Landscape

A recent report from the Society for Worldwide Interbank Financial Telecommunications (SWIFT) has revealed that the Chinese yuan has surpassed the euro to become the second most-used currency in international trade finance markets. SWIFT, a key player in cross-border payments, published its RMB Tracker report, tracking the progress of the Chinese yuan's internationalization. In September, the yuan achieved a 5.80% share, up nearly 1% from August's 4.82%. Meanwhile, the euro secured a 5.43% share, with the Japanese yen coming in fourth at 1.40%.

SWIFT's assessment was based on the number of MT400 (advice of payment) and MT700 (issue of a documentary credit) messages by value in its system during September. Nevertheless, when considering other message types, the yuan ranks as the fifth currency for global payments by value, holding a 3.71% share.

Despite the chatter surrounding the potential decline of the U.S. dollar's dominance due to its use as a geopolitical tool, the dollar remains the preferred global currency. SWIFT data reveals that the dollar maintains an 84.15% share in finance markets. It also continues to be the leading currency for SWIFT global payments, boasting a 46.58% share, taking into account customer and institutional payments made through SWIFT's messaging system.

The Chinese yuan's rise as an international currency is a remarkable journey, having jumped from being the 35th most-used currency in 2001 to its recent ranking. In April, China's use of the yuan in international settlements exceeded that of the U.S. dollar for the first time, signaling its intent to reduce dependence on the American currency.

The yuan's journey toward internationalization might extend beyond SWIFT, as China's central bank digital currency (CBDC), known as the e-CNY, gains prominence. The e-CNY offers more flexibility compared to the current financial system.

Additionally, there have been concerns among several central banks regarding the outcomes of the Mbridge project, which is a collaborative CBDC interconnection network project involving China, Hong Kong, Thailand, and the UAE. This initiative aims to facilitate billions in trade that would circumvent regular channels by using the digital yuan.

Disclaimer: The information provided in this section is for informational purposes only, doesn't represent any investment advice or FameEX's official view.