January 23, 2013 / 7:26 AM / in 5 years

REFILE-Payments in Chinese yuan ease off in the U.S. - SWIFT

3 Min Read

HONG KONG, Jan 23 (Reuters) - Yuan transactions in the United States slid 38 percent in December from November, making 2012 a flat year for growth of the Chinese currency in the world's largest economy, global transaction services organisation SWIFT said on Wednesday.

"We expect that most U.S. flows we currently see in RMB are non-trade related and are subject to more variability than countries with strong underlying trade flows like Europe, so this is not unexpected," Lisa O'Connor, RMB director for the organisation, said in its latest report.

As a currency for payments, the yuan, also known as the renminbi, needs to overcome a number of challenges including inertia and systems set up to invoice only in U.S. dollars, she added.

Beijing has been stepping up its efforts to promote wider use of its currency globally through bilateral currency swaps and trade settlement deals, aiming for the yuan to match China's rising clout as the world's second-largest economy.

But analysts say it may prove difficult for the United States to widely adopt the "redback", since broader use of the yuan as well as the enhanced economic status of China will pose a threat to the world's No.1 economy and its currency.

"I don't think the U.S. has the incentive to help promote the internationalisation of the yuan, since they worry China will become a threat if the yuan can be used more widely," said Chi Lo, BNP Paribas' senior strategist in Greater China.

As for U.S. corporates, some may also be reluctant to use the yuan if they do not expect rapid development and adoption of the Chinese currency by other companies and countries in the coming years.

The United States represented 4.1 percent of yuan payments by value in December, compared with 6.6 percent in November (excluding China and Hong Kong), SWIFT data showed.

While dollar payments still dominated transactions between the United States and China/Hong Kong, comprising 95.5 percent of transaction in December, followed by the Hong Kong dollar at 2.7 percent, Malaysian ringgit 0.9 percent, Japanese yen 0.4 percent and Chinese yuan at 0.3 percent.

In December, overall yuan payments fell 4.2 percent from November, compared with an average 5.7 percent decline across all currencies.

However, the yuan remains the world's 14th most widely used currency with a market share of 0.57 percent, SWIFT said.

China will steadily push forward market-based liberalisation of interest rate and improve the yuan exchange rate formation mechanism, while expanding the international use of the yuan to gradually realise capital account convertibility of the currency, Premier Wen Jiabao said on Monday.

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