The project to internationalise the renminbi (RMB) has been in play for a number of years and previous efforts to get the RMB to be on the same footing as the US dollar as an international currency have fallen short. That narrative may be set to change, however, with recent figures that show RMB usage has picked up in recent months.

Swift, the international payment messaging network, tracks the progress of the renminbi towards being a fully internationalised currency in its RMB Tracker. In its most recent update, its figures show the use of RMB for payments had increased in November 2023, pushing it up into fourth place in the rankings of global currencies. In terms of the share of global currencies by value, the RMB took a share of 4.61%, which was a dramatic increase in value of 34.87% from the month before.

With the RMB now in fourth place, the yen has been knocked down to fifth position, while the US dollar continues to take up the lion’s share of international payments (where they were exchanged with Swift messaging).

Hong Kong continues to dominate as a RMB offshore financial centre, taking 80.06% of the share of inbound and outbound customer initiated and institutional payments, according to Swift. This was followed by the UK in second place with a 5.31% share, and Singapore with 2.75% of the weight of RMB payments.

Meanwhile, for trade finance there was a similar story, with the RMB’s share of trade finance also increasing although the US dollar takes up the majority of trade finance messages that are exchanged over Swift. In November 2023, the US dollar accounted for 83.97% of trade finance, and the RMB edged up into second place with 5.70% ahead of the euro in third and the yen in fourth position with 1.33%.

The preference for RMB for trade finance has been put down to low interest rates, making it possible – and more lucrative – to borrow cheaply. In December, the People’s Bank of China kept the one-year prime loan rate, which many corporate loans are based on, at 3.45% which compares favourably to the US Federal Reserve’s comparable rate of 5.25%, for example.

Previously, the yen was the favoured currency for carry trades, where borrowing occurred at low, or even negative interest rates, so the funds could be invested in something with a higher yield. Bloomberg reported back in September the RMB had emerged as an alternative to yen for funding carry trades and was favoured by banks such as Goldman and Citi.

Also, the RMB’s recent rise in popularity has been attributed to worsening US-China relations and also Russia’s war with Ukraine, which resulted in sanctions against Russia and China pushing the RMB as a practical alternative to the US dollar. Alicia Garcia-Herrero, Senior Fellow and Alessia Amighini, Non-Resident Fellow both at Bruegel write in a paper this increase in using RMB for trade settlements is interesting, given the RMB’s depreciating value against the US dollar.

In October 2023, it was reported China was encouraging RMB internationalisation through its Belt and Road Initiative. China Development Bank, for example, had signed RMB-denominated contracts with Maybank, the Central Bank of Egypt and BBVA Peru, according to Reuters.

Garcia-Herrero and Amighini comment that there have been two previous pushes by China to internationalise its currency, which have both failed. Now, however, it may be third time lucky for China as it is more realistic in its plans. The environment is more favourable for more widespread adoption as China is a major trading partner for many countries and is a major creditor to many developing countries.