Euro overtakes renminbi in global trade finance use

”Stellar” growth of renminbi’s use for payments offset by trade finance slump, as nascent Trump agenda chips away at currency’s broader market value

China’s renminbi has slipped to third place behind the euro in standard trade-finance transactions, according to the latest RMB Tracker report from global payments network SWIFT.

The organisation notes that, while the renminbi has shown “stellar” growth in payments since the Tracker was launched five years ago, its use has declined steadily in letters of credit and collections.

Figures from the Tracker show that, three years ago, the renminbi ranked second in trade finance with a share of 8.66%.

But since October 2013, trade finance values in the currency have declined by 66%.

That slump stands out markedly against the decrease across all currencies in that period, which averaged 35%.

SWIFT’s head of payments for the Asia-Pacific, Michael Moon, said: “The general slowdown of the Chinese and world economies over the past few years has impacted global trade growth across all currencies, not just the renminbi.

“For example, commodities trade growth has been declining, as evidenced by the reduction of documentary trade.”

However, on a positive note, Moon added that the renminbi’s inclusion in the International Monetary Fund’s Special Drawing Right basket should generate further trust and confidence in the currency and support its further internationalisation.

SWIFT’s news caps a rough spell for the renminbi in terms of its broader market appeal, described in two, separate Financial Times articles – published a full week apart – as at an eight-year low.

In the first piece, from 17 November, the drop was attributed to the victory in the US Presidential election of Donald Trump.

An arch critic of China, Trump has claimed that its finance officials have engaged in currency manipulation to artificially boost the US trade deficit. Markets anticipate that Trump’s criticism will only intensify after he takes office on 20 January.

The second piece, from 24 November, said the renminbi had been affected by a more general rout of emerging-market currencies, amid a “relentless rise” of the dollar.

Koon Chow, a strategist at wealth management firm UBP, told the publication: “Emerging markets are suffering from a double whammy of higher US Treasury yields and a stronger dollar on the back of capital inflows to the US equity market.”

ANZ senior analyst Tom Kenny cited the nascent Trump policy agenda as a key cause of the emerging-market currency malaise.

“However,” he noted, “there are a number of other factors… including unfavourable political developments in Malaysia and the Philippines, and ongoing worries about Chinese capital outflows.”

The Treasurer will continue to monitor the Trump government’s effect on currency markets as its policies emerge.

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