Cross-border yuan settlements hit new record high in 2020 – PBOC report

China’s cross-border settlements in the yuan hit a new record high in 2020 and the share of the yuan in the overall cross-border settlements also high an all-time high.

The cross-border use of the yuan, including payments and receipts, surged 44.3 per cent year on year to 28.39 trillion yuan (about $4.4 trillion) in 2020, an all-time high, according to a latest report released by the People’s Bank of China (PBOC).

The yuan accounted for 46.2 per cent of the overall cross-border settlements last year, marking a new record high and increasing by 8 percentage points from 2019, the central bank said.

The trend continued in the first half of this year, when cross-border yuan settlements reached 17.57 trillion yuan, accounting for 48.2 per cent of the overall cross-border settlements for the period, rising by 2.4 percentage points from the same period last year, according to the report.

Cross-border settlements in the yuan under current account reached 6.77 trillion yuan in 2020, rising by 12.1 per cent from 2019, showed the data. Cross-border settlements in foreign trade reached 4.78 trillion yuan last year, up 12.7 per cent from 2019, the central bank said.

Cross-border settlements of yuan under capital account grew at an even faster pace, jumping by 58.7 per cent year over year to 21.62 trillion yuan in 2020.

In particular, cross-border yuan settlement in securities investment made up 76.4 per cent of the total under capital account. By the end of 2020, a total of 905 overseas institutional investors had entered China’s interbank bond market, according to the PBOC. Cross-border yuan settlements in direct investment made up 17.7 per cent of the total under capital account, according to the data. Cross-border financing in the yuan made up only 4.3 per cent of total under capital account, showed the data.

The PBOC said in the report that it “will work to make it easier for overseas entities to allocate yuan-denominated financial assets and promote cross-border yuan investment and financing business.”

The central bank will strengthen the monitoring cross-border capital flows and prevent systemic risks, it added.

China’s regulators have officially kicked off the Wealth Management Connect between Hong Kong, Macau, and the nine cities in Guangdong Province, known collectively as the Greater Bay Area (GBA), with allows investors domiciled in the GBA to invest in approved wealth management products in Hong Kong and Macau and allows foreign investors to tap financial products in China via the two cities.

In addition, the southbound leg of the Bond Connect Scheme which allows mainland investors to buy bonds in Hong Kong will be officially launched on September 24.

In addition to rising share in cross-border payment, the yuan’s share in global foreign exchange reserves rose to 2.45 per cent in the first quarter of 2021 from 2.2 per cent in the previous three months, according to the International Monetary Fund’s Currency Composition of Official Foreign Exchange Reserves (COFER) survey.

Total yuan foreign exchange reserves jumped to an equivalent of $287.46 billion in the first quarter, achieving nine consecutive quarters of growth, showed the survey.

The US dollar remained the most widely held currency by global central banks, edging up to 59.5 per cent, followed by the euro at 20.57 percent and the yen at 5.89 per cent, IMF data showed.

The yuan was the fifth most-used currency for global payments by value in May, according to the Society for Worldwide Interbank Financial Telecommunications (SWIFT).

Analysts said the yuan’s strengthened foothold and increasing credibility was also a result of China’s sound monetary policy over the past year. Central bank governor Yi Gang said in January that China will prioritize stability in monetary policy in 2021.