LONDON, Feb 7 (Reuters) - Usage of the Chinese yuan in key international centres fell 10.5 percent last year, hitting a 29-month low in December 2016, a proprietary index compiled by Standard Chartered showed on Tuesday.
Earlier in the day, official data showed that Chinese hard currency reserves had fallen below the key $3 trillion mark for the first time in almost six years as capital outflows continued unabated despite a raft of regulations and capital controls.
Standard Chartered, which measures offshore yuan activity via a special Renminbi Globalisation Index (RGI), said these measures had also curbed usage of offshore yuan. The index is based on various gauges of currency use including cross-border payments and yuan deposits overseas.
It added that “tighter capital controls, lingering intervention worries and persistent depreciation expectations have kept genuine CNH users cautious”.
The index plunge was most marked in December, with a two percentage point fall to 1,926 points or 20 percent below peaks hit in mid-2015, Standard Chartered added, citing a sharp fall in CNH deposits offshore as Beijing engineered a liquidity squeeze to force flows back to the mainland.
According to the data, just 11.5 percent of China’s goods trade was settled in yuan in December, a 28 percent decline compared with the same month in 2015. Overall in 2016, yuan-settled goods trade declined 36 percent from the previous year.
Standard Chartered expects the decline in offshore yuan usage to continue this year as Beijing intensifies efforts to clamp down on capital outflows.
It highlighted that last January too, Beijing had squeezed liquidity and noted that offshore use had failed to recover in the months after that. That trend will carry into 2017, it predicted.
China has been keen to promote yuan use overseas, and last year the unit was being included in the International Monetary Fund’s basket of reserve currencies.
But Standard Chartered said Beijing’s priority now was different.
“January’s drop in FX reserves to below $3 trillion further confirms that the pressure remains for Beijing to prioritise currency stability and curb capital outflows over promoting renminbi internationalisation,” the bank added.
Onshore, the yuan is controlled by the central bank, trading within a 2 percent band either side of a reference rate, but it can move more freely offshore, hence the different exchange rates.
While most offshore yuan trading is in Hong Kong, London and Singapore are also important centres. (Reporting by Sujata Rao; Editing by Hugh Lawson)