As an effect of economic stagnation, uncertainties, higher volatilities and surprised devaluation of Yuan in August last year and large depreciation in January this year, Yuan is losing its stature in global payment system.

While many had expected that after Yuan’s inclusion in International Monetary Fund’s (IMF) FX basket will increase demand for Yuan, we argued that central banks are likely to hold swap agreement than actual currencies and actual demand will depend on the economics. Since then, it would be fair to say, Chinese economy hasn’t improved much despite monetary and fiscal stimulus.

Rise of Yuan –

Yuan rose sharply into prominence post-financial crisis, which finally led IMF to recognize its claim to be included in SDR basket.

• Back in January 2012, Yuan first entered among the 20 most used currency in transactions, accounting for just 0.25% of all transactions.

• And in January 2013, Yuan rose to rank 13th among currencies most used for global payments, accounting for only 0.63% of all transactions. By January, 2014, it rose further to 7th position, surpassing currencies like Swiss Franc, Hong Kong Dollar, accounting for 1.39% of all global FX transactions.

• According to data from SWIFT, by August 2015, Yuan’s rank improved to fourth surpassing Japanese Yen and accounting for 2.79% of all global transactions.

Fall of Yuan –

Surprised devaluation of Yuan in August and fear of hard landing is doing the damage for Yuan, whose rank is slipping in currency payment system, according to SWIFT data.

• After Surpassing Yen by August, 2015, Yuan’s position slipped to fifth after USD, EUR, GBP and JPY, accounting for 2.31% of all transactions.

• According to latest data, Yuan’s share in global transactions dropped to lowest since October, 2014 to 1.76%.

Well that was a blow for Renminbi globalization. Unless, China reforms its economy and limit its intervention in financial markets as well as FX, true potential of Yuan will not be realized.