Chinese Yuan on the Rise

The preliminary results from the BIS triennial survey for 2013 are out. There are a lot of interesting results, but one I want to flag is that the Chinese yuan is increasingly used in forex transactions.

Figure 1: Share of total foreign exchange transactions accounted for by CNY, in percent, April 2013. Source: BIS, Table 2. Dashed line indicates break in coverage of offshore centers between 2010 and 2013 (coverage is more complete in 2013).The Chinese government has been quite aggressive in increasing the use of the Chinese currency, as noted in this post. It’s important to note the axis on the figure; the CNY has risen to 2% of total trading, so is still not a major player, despite big movements (it displaced the Swedish krona which was ranked 9th in 2010).Hence, the yuan is far from becoming a reserve currency [1] [2], but there are other dimensions of an international currency that the CNY could fulfill. One of these is use as an invoicing currency, and here, the CNY has made rapid progress.

In a study conducted by myself and Hiro Ito (revision soon to be put online, current version here), we document the rise in CNY invoicing for Chinese exports and imports, and compare against JPY invoicing for Japanese exports and imports.

Figure 5 from Ito and Chinn, “The Rise of the “Redback” and China’s Capital Account Liberalization: An Empirical Analysis on the Determinants of Invoicing Currencies,” Paper prepared for ADBI workshop “Currency Internationalization: Lessons for the RMB,” Tokyo, August 8, 2013.
In the study, we employ a panel time series analysis to predict invoicing, and conclude that 2010 levels of CNY invoicing of exports are below model-predicted levels, suggesting further increases in home currency invoicing are plausible.

This piece is cross-posted from Econbrowser with permission.