The Chinese yuan is now bigger and bigger than the Japanese yen, meaning the currency is inching its way to becoming a truly global currency.
While China policy makers still have a ways to go before the currency is free-floating like the rest of the world's major currencies, the yuan surpassed the yen in global payments according to the Society for Worldwide Interbank Financial Telecommunications, best known as Swif.
The yuan currently accounts for 2.8% of global payments as of August, compared with 44.8% for the dollar, 27.2% for the euro and 8.5% for the British pound. The Chinese currency has been gaining traction, mainly as a commodity currency used between large exporters in Australia and elsewhere who are turning to the yuan instead of the dollar.
"In overtaking the yen to break into the world's top four payment currencies, the yuan has passed another milestone in its rapid evolution and now looks set to become the leading global currency from Asia," says Diane Reyes, Global Head of Payments and Cash Management at HSBC. "Growing use of the yuan for cross-border trade and investment
shows that demand isn't simply driven by China's domestic markets but that the currency's becoming deeply embedded into the international economy."
The yuan is well on its way to become a top three currency and is likely to replace the British pound within five years. This is especially true if the yuan becomes part of the Special Drawing Rights currency basket at the International Monetary Fund.
Also in August, Chinese authorities increased the trading ban on the yuan with the dollar, allowing for a 4% move in either direction instead of a 2% move. The market immediately shorted the yuan against the dollar and it's been trading in the 6.30s since. Prior to the August decision it was around 6.13 to the dollar.
Back in 2012, the yuan was ranked No. 12 on the Swift list with less than 1% of global payments share.
