Yuan becomes 5th most traded currency, helped by Russia

China's yuan has jumped to fifth place in currency transactions, new data shows, as the country's economic expansion increases trade and sanctioned Russia turns to the Chinese market. According to data published by the Bank for International Settlements, Chinese currency surpassed Australian, Canadian and Swiss currencies. Nikkei Asia writes, citing BIS, the yuan's average daily turnover in April came to $526 billion -- up 85% from the same month of 2019.

The Chinese currency accounted for 7% of overall transactions, up 2.7 percentage points. The sum of percentage shares totals 200% because two currencies are involved in each transaction. The yuan trailed only the dollar, the euro, the yen and the pound. The yuan, which ranked No. 8 in terms of share in April 2019, surpassed the currencies of Australia, Canada and Switzerland in the new ranking. The BIS releases data on over-the-counter foreign exchange turnover every three years based on reports from central banks around the world.

China's growing transactions with Russia are believed to be behind the shift. Russia accounted for 3.58% of offshore yuan payments in September -- the fourth-highest figure -- according to SWIFT, the global payments messaging system. Russia was not even in the top 15 through March. But after climbing to 12th place with 0.62% in April, it rose rapidly and sat in No. 3 in July and August.

Russia is moving closer to China as the U.S. and Europe try to isolate the country. In addition to payments made for crude oil and other traded goods, major aluminum producer Rusal became the first Russian company to float corporate bonds in yuan.

Although China is the world's second-largest economy, the yuan is much less a global currency than the dollar or the euro because of strict capital controls imposed by Beijing to maintain the yuan's stability. On the mainland, foreigners are basically prohibited from trading yuan-denominated stocks and bonds. Overseas remittances require such paperwork as documents to show that they are not capital transactions.

"The yuan's share will likely continue to increase in line with the growth in trade volume," said Masashi Hashimoto, a senior economist at the Institute for International Monetary Affairs. "But it is unclear if it will increase at the current pace, because political and financial instability could grow," he said.

The dollar has the highest turnover in the BIS data for April, with an average daily amount of $6.64 trillion. Its share rose only slightly from the 88.3% of three years earlier. The yen's share dropped 0.1 point to 16.7%.