The latest data from Swift show renminbi usage in traditional trade finance letters of credit and collections surged from a global share of 1.89% in January 2012 to 8.66% in October 2013.
That saw the renminbi overtake the euro, which saw its share drop from 7.87% to 6.64%, and the yen, which saw its share drop from 1.94% to 1.36%. The renminbi now only ranks behind the dollar, which maintained its pre-eminent position with a share of 81.08% in October 2013.
According to Swift, the top-five countries using renminbi for trade finance in October 2013 were China, Hong Kong, Singapore, Germany and Australia.
The renminbi is clearly a top currency for trade finance globally and even more so in Asia, says Franck de Praetere, head of payments and trade markets, Asia Pacific, at Swift.
Renminbi as world trade finance currency in value
Overall, the renminbi remained stable as the worlds 12th most-used global payments currency in October, with its share dipping to 0.84% compared with 0.86% in September.
Renminbi as world payments currency in value
However, the renminbis overall share in payments could rise to match its importance in trade finance, as reforms take hold in China.
It also comes after Beijing set out plans for financial deregulation and reform at its third plenary session last month, which have the potential to increase the use of the renminbi in non-trade related financial transactions.
Although the timetable for those plans is unclear, it appears China is eager to open the current account and allow the renminbi to be more influenced by market forces.
Indeed, Chinese officials have openly questioned the rationale behind the policy by which it controls the value of the renminbi, which has seen it accumulate a record $3.6 trillion in FX reserves.
It is no longer in Chinas favour to accumulate foreign-exchange reserves, said Yi Gang, deputy governor of the Peoples Bank of China (PBoC) and head of Chinas State Administration of Foreign Exchange, late last month.
The marginal cost of accumulating foreign-exchange reserves has exceeded the marginal gains.
Qu Hongbin, chief economist for Greater China at HSBC, says the reform blueprint issued after the conclusion of the third plenum is a bold move that pushes forward liberalization in cross-border investments and trade while deepening financial reforms in China.
He says the blueprint addressed all of the key reforms that the market had long been expecting: accelerating interest-rate liberalization; reforming the renminbi exchange-rate regime; speeding up renminbi capital-account convertibility by promoting the two-way opening up of capital markets; and the easing of restrictions on cross-border capital and financial transactions.
That progress on the renminbi capital-account convertibility will be faster than many expect, says Qu. The next step will be expanding portfolio flows.
He notes comments from Zhou Xiaochuan, PBoC governor, who recently said Chinas QDII and QFII quota and qualification schemes will be eliminated at an appropriate time to allow all legal organizations to invest in China.
Its now official, says Qu. Get ready for a series of concrete actions to be carried out over the coming quarters.
The opening up of Chinas capital markets should see the renminbi surging up Swifts overall league table of payments.