China's Yuan, also known as the Renminbi (RMB), has eclipsed the Euro to become the world's second most used trade currency. Global trade continues to be dominated by the U.S. Dollar though.
According to the Society for Worldwide Interbank Financial Telecommunication (SWIFT), the share of the Yuan's usage in trade finance, such as in Letters of Credit and Collections, surged from 1.9 per cent in January 2012 to 8.7 per cent in October 2013.
"It's true that overseas exporters are using the renminbi more as the contract currency to increase the attractiveness and competitiveness of goods or services sold to China," Cynthia Wong, Hong Kong-based head of emerging-market trading for Singapore and Hong Kong at Societe Generale SA, said.
The Euro's share plunged from 7.9 per cent in January 2012 to 6.6 per cent in October 2013.
The U.S. Dollar, in the meantime, continues to dominate with a share of 81.1 per cent.
"Companies are getting more of a comfort zone to trade in renminbi," Debra Lodge, a New York-based head of renminbi business development at HSBC Bank USA N.A., a unit of HSBC Holdings PLC, told WSJ. "It's just a natural progression in the opening up of China."
The top users of Yuan in trade finance were China, Hong Kong, Singapore, Germany and Australia, the Belgium-based financial-messaging platform said.
"The renminbi is clearly a top currency for trade finance globally and even more so in Asia," Franck de Praetere, SWIFT's Singapore-based head of payments and trade markets for Asia Pacific, said in the statement.
Market watchers expect the Yuan's use in international trade to continue growing in the coming years. Based from an HSBC poll conducted early this year, a quarter of 700 global businesses said they will start using the currency in trade settlements within the next five years.
"Businesses trading with China that fail to seize the opportunity of using the Yuan may be losing out to their competitors - it's not a level playing field," the bank said.
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