The international use of a currency for payments is usually an indicator of the globalization of the currency. China, the second-largest economy in the world is always proud of the use of Yuan for international payments. China reveals the data about currency news and this time, the news is not so good for the currency. In the year 2016, the use of Chinese Yuan as an international currency for payments has declined sharply. This means that the efforts taken by the government to stabilize the currency are not sufficient to maintain its international value.
In 2016, the value of Yuan payments made internationally has decreased by 29.5%. Yuan lost 0.63% of its share to reach the value of 1.68 per cent in the international currency payment transactions. In 2015, Yuan emerged in the top as the fifth most sought after currency. Now, Canadian dollar has pushed Yuan behind, claiming that position. 42.1% of international payments are carried through US dollar and 31.3% of the payments are carried out using Euro. British Pound and Japanese Yen became the third and fourth favorite currencies all over the world.
The decline in the use of Yuan is directly caused by the weakened Chinese economy. Yuan became extremely volatile as the exchange rates continued to drop. To prevent capital outflows, the government has taken numerous measures but the results were not highly favorable. In December Yuan continued to weaken at a much faster pace while the government imposed stringent regulations on capital control. The value of Yuan decreased 15.1% per cent, indicating a major problem with the Chinese economy.
Yuan depreciation is not welcomed by overseas merchandise buyers and they decreased the use of Yuan in international payments. Against the greenback, Yuan lost 6.6% in just one year. Experts predict that Yuan will continue to weaken and it will drop further to reach the level of 7.3 to 7.5 in this year. This means that Yuan will not get a chance to become the true international currency.
The government doesn’t want to encourage the outflow of Yuan. The capital outflow will result in a decline in the Yuan reserves as they get converted into dollars. This can put further pressure on the exchange rate of Yuan. Previously, the People’s Bank of China showed interested in internationalizing Yuan and thus it was obsessed with the use of Yuan in international currency payments. However, in the upcoming year, the PBOC has to face challenges relating to the exchange rate of the currency. In 2017, the PBOC will focus its attention on stabilizing the currency first.
After the US presidential election, Chinese Yuan faced a major decline against US dollar as well as the greenback. Now that the US dollar has steadied, Chinese Yuan has a chance to improve its value. The fiscal expansion plan of Donald Trump has taken a backseat and Yuan may have some time to recover.
However, the Chinese government hopes that internationalization of Yuan will grow in the long term as additional offshore Yuan clearing centers are established along with cross-border interbank payment system.