China's yuan is displacing other top global currencies in trade, but not the US dollar

• The yuan's growing use is chipping away at second-tier currencies, such as the pound, ING said.
• China's share of global payment transactions on the SWIFT system grew to 3% in July.

The Chinese yuan's gradual rise in global finance is pulling down other top currencies but not the dollar, according to ING, despite Beijing's desire to challenge the greenback's dominance.

China's bilateral swap lines and cross-border trade agreements have meaningfully boosted the yuan's position. Where once it accounted for just 0.03% of global payment flows in 2010, July saw that figure exceed 3%, SWIFT payments data shows.

The yuan's gains appear to be coming at the expense of other currencies, like the British pound, an ING report from last week noted.

"Despite some pressure, the USD remains the preferential currency for trade. A greater role of BRICS and other emerging markets in global trade may create more natural demand for alternatives to USD, but this has not happened so far. The higher share of CNY in trade invoicing doesn't seem to be dethroning USD, but rather pushing out second tier developed market FX, such as GBP," it said.

For its part, the dollar's share of SWIFT transactions is holding relatively steady, accounting for 46.5% in July and 42% in the first half of 2023. That's compared to 41% in 2022 and 44% in 2015.

Meanwhile, the euro's use on the SWIFT payments system hit a record low of 24.4% last month, though that's more on account of the all-time high for the dollar.

The recent SWIFT data confirms the dollar's strength, even as it faces deeper de-dollarization efforts and growing anti-greenback rhetoric from the BRICS bloc of emerging markets.

The coalition, which is currently hosting its 15th annual summit, previously discussed creating an alternative currency. Meanwhile, its flagship development bank announced plans to use local currencies for 30% of its lending.

On Thursday, BRICS leaders also publicized plans to expand the membership to include other nations. A larger coalition would not have an overwhelming impact on de-dollarization, ING wrote, though it could accelerate the creation of finance systems outside of the dollar's hegemony.

As an example, China has been steadily building an alternative to the Western-dominated SWIFT system, with the Cross-border International Payments System, or CIPS. Cut off from US regulation, it now has 91 direct participants.

Still the West's financial messaging and clearing systems account for 40 times more transactions than China's CIPS, according to ING.