BEIJING - The Chinese yuan has become the world’s fifth most traded currency, jumping from eighth place three years ago, according to a Bank for International Settlements (BIS) report, as the renminbi continues to gain international traction amid heightened geopolitical tensions.

Trading in the yuan increased to account for 7 per cent of global foreign exchange turnover in 2022, up from 4 per cent in 2019, the BIS said in its Triennial Central Bank Survey released Thursday Switzerland time, surpassing Australian, Canadian, and Swiss currencies.

The US dollar maintained its dominant position having been involved in one side of nearly 90 per cent of all trades, while the euro’s share slightly decreased to roughly 31 per cent, but remained the second most actively traded currency.

The Japanese yen and the pound sterling retained their relative rankings among the top five, unchanged since the last survey. Average daily transactions in the global foreign exchange markets reached US$7.5 trillion (S$10.6 trillion) in April when the survey was conducted, while the 14 per cent growth compared to 2019 was the lowest triennial growth rate in all but two BIS surveys since 2004, the report said.

The Basel-based institution suggested Covid-19 restrictions in some of its reporting jurisdictions including the Chinese mainland and Hong Kong Special Administrative Region may have suppressed turnover. It also attributed changing expectations for interest rates in major advanced economies, rising commodity prices, and Russia-Ukraine tensions for causing heightened foreign exchange volatility.

The 2022 survey showed an uptick in inter-dealer trading, which reached US$3.5 trillion or 46 per cent of global turnover, a higher share than in previous surveys, which the BIS said also reflecting elevated volatility in currency markets.

“During such periods, inventory imbalances arising from trades with customers are more difficult to manage, creating the need to more frequently offload them in the interdealer market,” the report said, adding that such imbalances may also result in greater cross-border trading and related party trades once passed among affiliates of the same dealer bank.

China’s push for greater global use of its currency has been gaining international traction, though largely dominated by cross-border trade, which surged 29 per cent to 36.61 trillion yuan (S$7.09 trillion) last year compared to 2020 and likely to continue rising this year, according to the People’s Bank of China.

Russian businesses are also settling more trade in the Chinese currency as they face sanctions that prevent them from trading in dollars. In September, Russian gas giant Gazprom and China National Petroleum Corp. signed a natural gas supply agreement in which the payments would be made half in rubles and half in yuan.

The triennial survey provides information on the size and structure of global foreign exchange and OTC interest rate derivatives markets, according to the BIS, an institution owned by 63 central banks and representing countries that account for about 95 per cent of world GDP. This year’s data was collected in April from central banks and other authorities in 52 jurisdictions.

In June, the BIS named Zhang Tao as its Asia-Pacific office head, making Zhang the first Chinese to join the BIS’ senior management team in the organization’s 92-year history. CAIXIN DAILY

• This story was originally published by Caixin Global.