Yuan surpasses dollar for first time

China has crossed a new milestone in reducing its dependence on the dollar as the use of the yuan in its cross-border transactions jumped above the green currency for the first time in March.

The share of the local currency in cross-border payments and receipts in China rose to a new record level of 48% at the end of the month from almost zero in 2010, according to research by Bloomberg Intelligence, citing data from the State Department of Foreign Exchange, and the share of the dollar fell to 47% from 83% during the same period, the figures show.

The ratio is calculated based on the volume of all types of transactions involving securities trading through links between mainland China and Hong Kong’s financial markets. The proportion does not represent transactions from the rest of the world, as the yuan’s share of global payments was little changed in March and stood at 2.3%, according to SWIFT.

Stephen Chiu, Chief Currency and Interest Strategist for Asia at Bloomberg Intelligence, wrote in a note: “Rising use of the yuan may be a natural consequence of China’s capital opening as Chinese bond inflows and Hong Kong stock outflows increase.”

Chris Leung, an economist at DBS Bank, said: “The internationalization of the yuan accelerates with other countries looking for an alternative payment currency to diversify risk and since the Federal Reserve’s credibility is no longer as good as it once was, but at the same time we are still talking a long way ahead of us with a predominant dollar, and the yuan’s share in global payments may remain small forever.”