Chinese Yuan Passes Euro to be the 2nd Top Trade Currency

The yuan’s share in global trade finance surged to 5.8% in September 2023, up from 3.9% at the beginning of the year, according to SWIFT, marking the first time it has surpassed the euro. This rise is attributed to the influx of companies borrowing from Chinese banks, taking advantage of the favorable borrowing conditions despite rising interest rates elsewhere.

Businesses and financial institutions are amassing unprecedented amounts of capital through yuan-denominated bonds, both on the mainland and in Hong Kong, known as panda and dim sum bonds, respectively. This trend has propelled the yuan to become the second most-used currency in global trade finance, aligning with China’s goal of promoting its currency on the international stage.

International companies, such as Germany’s BMW and Crédit Agricole SA, along with overseas subsidiaries of Chinese firms, raised a record 125.5 billion yuan (approximately $17.33 billion) by issuing panda bonds from January to October, a 61% increase compared to the same period last year. The National Bank of Canada also raised 1 billion yuan through a three-year panda bond issuance at a favorable rate of 3.2%, much lower than the 4.5% rate at home.

Dim sum bonds in Hong Kong reached a record issuance level, soaring 62% year-on-year to 343 billion yuan in the first eight months. Yuan-denominated loans in Hong Kong have also seen a significant increase, further fueling the yuan’s rise in global trade finance.

China’s growing share of the yuan in global financing aligns with its internationalization goals, although most of the recent activity is domestically focused. The People’s Bank of China (PBOC) highlighted in a recent report that panda bonds are playing a key role in establishing the yuan as a global funding currency. The yuan’s share in global trade finance rose to 5.8% by September, surpassing the euro, although it still lags far behind the U.S. dollar’s 84.2% dominance.

However, the yuan’s use in trade finance and payments is mainly advanced with developing countries that have friendly ties with China, particularly those involved in the Belt and Road Initiative.