The Yuan Could Become The Fourth Largest Global Payment Currency

The author is Standard Chartered Bank’s global research department

Renminbi deposits in Taiwan have taken off since the launch of Chinese Renminbi business in early February. By the end of July, Renminbi deposits in domestic banking unit accounts amounted to RMB46.5 billion.

This is 1.5 times more than the RMB30.3 billion deposited in offshore banking units. Going by the current pace, the total amount of RMB deposits, which was RMB76.9 billion as of the end of July, could reach RMB100-150 billion by the end of 2013.

Local residents have continued to switch to RMB as local banks have campaigned aggressively and offered relatively higher yields on RMB deposits. Indeed, overall RMB deposits now account for 11.8% of foreign-currency deposits, up from 6.2% in February.

However, the overall size of RMB-denominated bond issuance in Taiwan continues to be disappointing. There is much room for growth given that RMB-denominated bonds outstanding in Taiwan are only a mere 6% of RMB deposits in comparison to Hong Kong where outstanding Dim Sum bonds constitute 74% of RMB deposits.

Thanks to Beijing’s policy push, the RMB trade settlement regime has become highly liberal and is increasingly efficient. Its strong volume surge is what drives the RMB’s global journey.

Looking ahead, there appears to be plenty of room for natural growth, seeing that only around 14% of China’s total trade was settled in RMB as of the second quarter of 2013.

We expect China’s overall trade to double in size between now and 2020. By then, the share of RMB invoicing will also double, to some 28%. This, if true, would translate into a quadrupling of annual RMB settlement volumes to US$3 trillion by 2020.

All this means that the RMB’s share as a global payment currency would rise to around 3.0% from only 0.9% as of June 2013, making it the fourth-largest behind the U.S. dollar, the euro and the British pound.

(The article has been edited for clarity)

China Expert network