Chinese yuan accounts for 2.88% of global foreign exchange reserves in Q2 (IMF report)
The Chinese yuan accounted for 2.88% of global currency reserves in the second quarter of 2022, according to the latest IMF report, ranking fifth in the world and maintaining its highest global reading since the data was first released in 2016.
Observers say this reflects a steady step in the internalization of the yuan and global bullish views on the long-term development momentum of the Chinese economy.
The ratio could rise further in the future as the US Federal Reserve’s multiple interest rate hikes since the start of this year have undermined investor confidence in the US dollar-dominated financial system, which could further stimulate the globalization of the yuan.
In addition, the proven relative stability of the yuan – amid sharp depreciation of other major currencies, as well as the West’s sweeping sanctions against Moscow amid the Ukrainian crisis and conflict, will also accelerate the global use of the yuan, which will make it a “safe haven” asset that attracts more investors, according to Chinese analysts.
According to recently released IMF data, the yuan’s share of global foreign exchange reserves rose to 2.88 percent in the second quarter, the same as in the first quarter, ranking fifth in the world. The dollar remains the most important currency among central banks’ foreign exchange reserves, followed by the euro, the yen and the pound sterling.
The global share of 2.88% represents a 1.8 percentage point increase in the yuan’s share of global foreign exchange reserves on October 1, 2016, when the Chinese currency was added to the Special Drawing Rights (SDR) basket. ) of the IMF as the fifth currency. It also compares to the 2.68% and 2.8% global shares recorded in the third and fourth quarters of 2021.
In a major show of the yuan’s growing global recognition, the IMF further increased the Chinese currency’s weighting in the basket of currencies that make up the SER by 1.36 percentage points to 12.28% in August.
The steady pace of internalization of the yuan is also reflected in its increased use in world trade and settlements.
According to data from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) global payment services, the Chinese yuan maintained its position as the fifth most active currency for global payments by value in August, accounting for a 2.31% share. .
In August, the overall amount of payments made in yuan jumped 9.25% month-on-month, according to SWIFT data.
The global rise in the yuan comes as the credibility and reputation of the US dollar system is at greater risk of collapsing due to Washington’s reckless and irresponsible monetary policy that has pushed the world to the brink of an economic recession.
“European and American financial markets are gradually coming to a common view of the decline of the U.S. dollar system, while more and more recognize the trend of internationalization of the yuan over the long term,” said Chen Jia, a researcher at the International Monetary Institute of Renmin University. of China, told the Global Times.
From an investment perspective, yuan-denominated assets are increasingly attractive to overseas investors and institutions, including bonds, stocks and other assets, said Ming Ming, chief economist at Citic Securities. .
Additionally, yuan-denominated assets are gaining popularity in markets such as Russia. It is reported that the trading volume in the Chinese yuan and Russian ruble market will exceed the trading of ruble and US dollar in 2023 in Russia.
Some analysts have said that tougher economic sanctions imposed by the West on Moscow have also exposed the risks of overreliance on the US dollar and the euro, which will further encourage other countries to seek alternative payment options, such as yuan.
The expansion of the yuan in both foreign exchange reserves and global payments will support the stabilization of the currency’s exchange rate amid a wave of global economic and geopolitical uncertainties.