FameEX Hot Topics | Chinese Yuan Surpasses Euro as Second Most Popular Trade Finance Currency, Altering SWIFT Landscape

A recent report from the Society for Worldwide Interbank Financial Telecommunications (SWIFT) has highlighted a significant shift in the world of international trade finance markets. According to SWIFT, the Chinese yuan has now surpassed the euro to become the second most-used currency in these markets, marking a remarkable milestone in the yuan's internationalization.

SWIFT, a renowned player in cross-border payments and transactions, published its RMB Tracker report, specifically designed to monitor the progress of the Chinese yuan as it advances toward internationalization. In September, the yuan achieved a notable 5.80% share in international trade finance, representing a nearly 1% increase from the previous month when it stood at 4.82%. In contrast, the euro secured a slightly lower share of 5.43%, putting it in third place, while the Japanese yen claimed the fourth position with a 1.40% share.

SWIFT's analysis is based on the number of MT400 (advice of payment) and MT700 (issue of a documentary credit) messages by value within its system throughout September. However, when considering other types of messages, the yuan currently ranks as the fifth most-used currency for global payments by value, holding a 3.71% share.

Despite discussions regarding the potential decline of the U.S. dollar's dominance, fueled by concerns about its use as a geopolitical instrument, SWIFT data underscores the ongoing prominence of the dollar in the global financial landscape. The U.S. dollar maintains a substantial 84.15% share in financial markets. Furthermore, it continues to reign as the primary currency for SWIFT global payments, boasting an impressive 46.58% share, encompassing both customer and institutional payments conducted through SWIFT's messaging system.

The Chinese yuan's remarkable journey towards internationalization reflects significant progress. It has advanced from being the 35th most-used currency in 2001 to its current status as a top contender. Notably, in April, China reported that it had used the yuan more frequently than the U.S. dollar for international settlements for the first time, signaling its intent to reduce its reliance on the American currency.

The yuan's path to internationalization may extend beyond SWIFT, especially with the growing prominence of China's central bank digital currency (CBDC), known as the e-CNY. This digital currency offers greater flexibility compared to the existing financial system, providing new avenues for international transactions and settlements.

Additionally, concerns have emerged among several central banks regarding the potential implications of the Mbridge project. This collaborative initiative involves the development of a CBDC interconnection network and includes participants from China, Hong Kong, Thailand, and the UAE. The project aims to enable billions of dollars in trade to flow through alternative channels using the digital yuan, potentially challenging the existing financial order.

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