In September, the Chinese yuan took a bit of a step back in global transactions, with its share falling to 3.6%, a 1.1% drop from the previous month, according to SWIFT data. Back in July, the yuan seemed to be on a roll, hitting a record 4.7% share.
Why did the yuan slow down? Analysts are scratching their heads. Some blame the easing pressure on the exchange rate, while others point out that the yuan has been stronger lately, hovering around 7 yuan per dollar. Investors, encouraged by China’s new economic stimulus measures, might have also relaxed a bit, opting to revert to their dollar reserves.
Ken Cheung at Mizuho Bank explained that when the pressure on the yuan subsided, companies did not see much reason to keep using it actively and shifted back to their dollar reserves. Such an announcement raised more questions about the future of China’s currency.
Meanwhile, China continues its push to expand the yuan’s role in global markets, ramping up efforts especially since the US imposed sanctions on Russia. Zhaopeng Xing at ANZ suggests that the decline could be partially explained by a drop in swap deals on the debt market. However, he is confident that the yuan will soon return to a more stable level in the coming months.
It is highly possible that the yuan is experiencing a brief pause before its next leap as China’s economy is always ready for the next push forward.
