The dollar is no longer the most widely used currency for cross-border payments in China

China reached a new milestone in its quest to reduce its dependence on the US dollar: its currency, the yuan, became the most widely used for cross-border payments in the country for the first time in March.

The share of shipments reached 48% from almost 0 in 2010, as indicated by Bloomberg Intelligence based on data from the State Administration of Foreign Exchange.

In contrast, the dollar figure fell from 83% in 2010 to 47% in March.

The calculations are derived from the volume of all types of transactions, including securities trading through links between mainland China and Hong Kong’s capital markets.

This, however, does not represent transactions used by the rest of the world: the yuan’s share of global payments was little changed at 2.3% in March, according to SWIFT.

“The rise in yuan usage could be a natural consequence of China’s opening up of its capital account, with Chinese bond inflows and Hong Kong equity outflows increasing,” Stephen Chiu, chief currency and rates strategist for Asia at BI, wrote in a note.

The increased participation allows local companies to reduce currency mismatch risks in transactions, a spokeswoman for the State Administration of Foreign Exchange said at a briefing on Friday.

China will continue to expand yuan settlement in cross-border transactions, the State Council said in a guideline to boost foreign trade issued Tuesday.

“The internationalization of the yuan is accelerating because other countries are looking for an alternative payment currency to diversify risks and because the Fed’s credibility is not as good as before,” said Chris Leung, an economist at DBS Bank.

“But at the same time, we are still talking a long way from dollar dominance, and the yuan’s share of global payments could always be small.”

With information from Bloomberg

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