The Chinese yuan surpassed the euro in global payments for the first time, with its share rising to 5.8 percent in September from 4.82 percent in August, according to the Society for Worldwide Interbank Financial Telecommunication (SWIFT) data.
The yuan now stands as the second-most prominent currency in global transactions, second only to the U.S. dollar, which continues to maintain its dominant position in international trade. In September, the U.S. dollar accounted for 84.15 percent of trade settlements, up from 83.95 percent in the previous month.
The rising prominence of the yuan in international trade settlements reflects China's increasing economic power and its efforts to establish the yuan as a global reserve currency.
China's introduction of the yuan into its currency system in the late 1800s, along with a currency peg since 1994 and its robust export economy, has contributed to the yuan's growing influence in global trade.
The recent data from SWIFT underscores the shifting dynamics of the global financial landscape and marks a significant milestone as they try to internationalize their currency.
On the other hand, the euro, which has long been the second most used currency, now ranks third in international payments. Its use in SWIFT payments hit a three-year low, dropping from 6.43 percent in August to 5.43 percent in September. Cross-border transactions involving the euro also decreased, falling from 32.64 percent to 31.74 percent, a drop of nearly 0.9 percent.
Meanwhile, the Japanese yen is in fourth place, with its share increasing from 1.28 percent in August to 1.4 percent in September. Following closely is the Saudi rial, with a share of 0.56 percent in September, slightly down from 0.63 percent in August.
SWIFT is a Belgian cooperative society facilitating financial transactions and payments between banks worldwide. In 2023, the system has seen the dominance of the U.S. dollar and the euro, accounting for more than 70 percent of payments.
De-dollarization initiative
China has been actively promoting its own currency, the yuan, to compete with the U.S. dollar, the euro, the British pound and other major global currencies.
This initiative is part of a broader effort to reduce reliance on the U.S. dollar, also known as "de-dollarization," initiated earlier this year by China and its BRICS peers — Brazil, Russia, India and South Africa. Their goal is to eliminate the use of the U.S. dollar in global transactions within the next three years.
India, for instance, reported that some refiners opted to pay in yuan if banks were unwilling to settle trade in dollars. Indian Oil Corp, the country's largest purchaser of Russian crude, has started paying for some Russian purchases in the yuan.
"First preference is to pay in dollars but refiners sometimes pay in other currencies such as dirham and yuan when sellers ask them," said an unnamed Indian official.
Reports suggest that this success might not be a passing phase. BRICS' influence and power could increase in the future, potentially challenging the long-standing dominance of Western countries.
Ten financial sectors in the U.S., including the global financial system, banking and finance, energy and commodity markets, international trade and investment and capital markets, would be impacted.
Experts warn that the banking sector could be the first to feel the effects, potentially leading to a broader market crisis. Such a financial disruption could trigger a domino effect, affecting all sectors and potentially causing skyrocketing commodity prices and even hyperinflation.