NEW YORK (BLOOMBERG) - The Chinese renminbi is making deeper inroads as a currency of choice for global payments, with international transactions climbing to their highest level ever.
Payments using the renminbi jumped to a record 3.2 per cent of market share, according to data from the Society for Worldwide Interbank Financial Telecommunications, breaking through its previous high set in 2015 that came on the back of a currency devaluation in a bid to increase exports.
Usage has jumped in the past three months as international funds boosted holdings of Chinese government bonds, pushing their share to a fresh record, and amid gas producer Gazprom Neft's decision to accept the renminbi rather than United States dollars for fuelling Russian airplanes at China's airports.
The People's Bank of China governor Yi Gang urged emerging economies to promote the use of local currencies at a Group of 20 central banks' gathering on Wednesday, echoing a similar call from Indonesia to reduce reliance on the dollar to manage the risk of the US Federal Reserve's stimulus withdrawal.
The renminbi will be one of the biggest beneficiaries as "trade between various Asian countries and China grows" and more of it is denominated in renminbi, said Dr Alvin T. Tan, head of Asia FX strategy at Royal Bank of Canada in Hong Kong.
The renminbi's growing popularity could also provide additional support for assets denominated in the currency, even as China's yield premium over the US narrows due to policy divergence between the two nations.
According to Standard Chartered Bank's head of China macro strategy Becky Liu, China's bond market may see an inflow of 700 billion yuan (S$148 billion) to 800 billion yuan this year, compared with 755 billion yuan last year.
She expects the renminbi to be assigned a larger share in the International Monetary Fund's re-evaluation of Special Drawing Rights basket in July. The Regional Comprehensive Economic Partnership trade deal that deepens China's regional foreign trade ties will also prompt member nations to raise yuan asset holdings due to further economic integration with China, she wrote in a note on Wednesday (Feb 16).
The currency retained its fourth place in the past two months, compared with being the 35th most-popular medium of exchange for payments in October 2010 when Swift, which handles cross-border payment messages for more than 11,000 financial institutions in 200 countries, started tracking.
Despite its rise in the rankings and having upped its market share by orders of magnitude over the past 12 years, the renminbi is still dwarfed in popularity by its more established peers, notably the US dollar and the euro.
The dollar kept its top spot in January, a position it has held since June, even though its market share fell to about 39.9 per cent from 40.5 per cent in December. The euro also lost ground but held onto second place, while the British pound took third place and the yen rounded out the top five in fifth.