Currency Turmoil: Renminbi Share Drops Suddenly

The global trend of de-dollarization is on the rise, especially as the United States grapples with soaring debt and internal challenges. Amidst the backdrop of the U.S. transforming the only international clearing system into a financial weapon, the dollar's share of global payments has shown a decline.

Currently, the dollar's share of payments stands at 47.01%. Meanwhile, the renminbi, which has held a rare consistent fourth place globally for ten consecutive months, unexpectedly slipped to fifth place in September's global payments. What has happened? Has the internationalization of the renminbi come to a halt?

Is the dollar still reigning supreme?

On October 31, SWIFT released the currency usage data for September, revealing that the dollar remains at the forefront as the sole international currency, even as its share of payments gradually declines to 47.01%.

In the global payment system, the dollar commands a 47% share.

This is no small percentage; it acts like a mighty hammer, echoing the United States' prestige in the global economy and finance.

Since the end of World War II, the U.S. has leveraged its powerful economic and political influence to establish the Bretton Woods system, with the dollar reigning as its leader.

Advertisement

Though this system is now defunct, the dollar's dominant status remains as solid as ever.

The U.S. financial market is also quite formidable; places like the New York Stock Exchange and NASDAQ rank among the world's premier financial markets, attracting countless international funds, further solidifying the dollar's position.

More crucially, the dollar plays a central pricing role in the international trading of essential commodities such as oil and gold. As such, other countries must hold some dollars to engage in trade.

These factors undoubtedly keep countries tied to the dollar in the short term, maintaining its formidable lead.

However, this does not mean the dollar can bask in its supremacy indefinitely.

The U.S. has wielded its strong dollar hegemony to pressure Russia, expelling certain financial institutions from the SWIFT system and weaponizing the dollar's transaction framework to hinder normal trade with Russia.

This heavy-handed approach has placed significant pressure on many countries, which have had no choice but to endure higher trade costs.

Even though nations are still somewhat dependent on the dollar, they have started to increase their holdings and use of non-dollar currencies.

By excessively deploying their status as the world's largest economy in international affairs, as seen during the sanctions against Russia, the U.S. has inadvertently imposed considerable strain on other nations, prompting them to accelerate their steps towards diminishing reliance on the dollar.

Such actions are akin to digging their own grave for the U.S.

Has the internationalization of the renminbi met its demise?

The international community's concerns regarding the dollar perfectly coincide with the rising influence of the renminbi.

Whether it's Japan renewing its currency swap agreement with China or HSBC's Hong Kong branch engaging with the renminbi payment system, multiple indicators suggest that the renminbi is increasingly accepted and utilized by more countries.

However, according to SWIFT's data, the renminbi, which had consistently ranked as the world's fourth largest payment currency, faced a setback in September, dropping not only from a previous 4.74% to 3.61%, but also falling to fifth place globally.

On one hand, there’s a vigorous push for the internationalization of the renminbi; on the other, the global payment share faces a Waterloo. What conflicting narratives and theories are unfolding?

It is well-known that renminbi payments mainly occur in the context of import and export trade between China and other countries, rather than transactions involving foreign parties.

In recent years, as our domestic trade scale has continuously expanded, the share of the renminbi as a settlement currency has steadily risen.

Indeed, how much do our financial institutions, companies, and citizens conduct in cross-border transactions?

About half are settled in renminbi.

As the world's largest exporter of goods and the second largest importer, China is also one of the countries attracting the most foreign investment and engaging in substantial outward investment.

In these aspects, China wields significant influence.

However, in September of this year, external demand has gradually weakened, along with unpredictable natural disasters (such as typhoons), leading to a significant slowdown in export growth, which fell to its lowest level since May.

Such outcomes understandably exerted a negative influence on the payment situation of our commonly used currency—the renminbi.

Furthermore, although SWIFT plays a crucial role, it is not the only global currency payment tool we use in transactions.

Let us not forget that even without it, international trade can still be conducted normally, especially since China has introduced a system called the "Cross-border Interbank Payment System" (CIPS), which allows certain currencies like the renminbi to settle without relying on SWIFT.

Take China-Russia trade, for instance, where over 90% of transactions are settled in local currencies.

In recent years, an increasing number of countries have joined CIPS, indicating that China can trade with other nations without going through SWIFT. Thus, the reduction in usage share is somewhat justified.

Moreover, since the Federal Reserve began lowering interest rates and changes to renminbi exchange rate predictions emerged, coupled with a series of significant economic stimulus policies from our country, the volume of swap transactions has seen a sharp decline starting in September.

This directly led to a noticeable decrease in the renminbi's usage internationally; however, this situation is expected to stabilize gradually in the coming months.

Therefore, the decline in payment share in September does not signify the failure of renminbi internationalization; rather, it reflects the renminbi's gradual move away from SWIFT.

Nevertheless, the internationalization of the renminbi cannot be achieved overnight. Although the dollar's share is declining, it still leads significantly. We must face reality and advance steadily based on that.