According to the Shanghai Securities News citing data from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) for global currency payments in March, among the top five active payment settlement currencies, there was a trend of three increases and two decreases, but the top five ranking did not change significantly from February. They are the US dollar, euro, pound sterling, Japanese yen, and Chinese yuan, with the yuan showing a noticeable increase month-on-month. The euro's market share declined significantly. Based on the SWIFT system, can it truly reflect the global payment situation of the yuan? Does the CIPS cross-border yuan settlement system also need to settle through SWIFT? Is this claim credible?

The status of the US dollar is unshakable.

Under the SWIFT messaging system, the US dollar remains very strong, holding the position of the world's number one settlement currency.

Although over the past year or so, the global "de-dollarization" process has been accelerating, the US dollar still dominates international trade. Countries maintain a certain proportion of dollar settlements while increasing the settlement ratio of other currencies and implementing currency swap strategies to reduce the risk of dollar payments.

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However, even a dying camel is larger than a horse, not to mention that the current economic and financial problems in the United States have not fully erupted. The US has temporarily plugged the volcano mouth of the banking crisis through acquisition and bottoming out, so the US dollar still dominates the position of the world's largest payment currency.

Another important reason is that the continuous interest rate hikes by the United States have led to the appreciation of the US dollar, which naturally leads to the appreciation of US dollar-denominated assets and the depreciation of other European currencies and emerging market currencies, resulting in an increase in the proportion of the US dollar in the global payment system.

In March 2023, the US dollar's payment share under the SWIFT messaging system increased by 0.64% month-on-month from February, reaching a global share of 41.74%.

We objectively view this data of the US dollar, after all, the United States is still the world's largest economy. As the international monetary system formed after World War II, the US dollar continues to maintain its strong position.

In recent years, with the abuse of dollar hegemony, countries have accelerated de-dollarization, but the influence of the United States is still widespread globally, especially in the European region, where the United States still holds a leading position. Therefore, the settlement of global commodities is still priced and settled in US dollars.The US dollar, backed by the United States' economic, military, and financial dominance, still retains the attributes of a globally circulating currency, which naturally allows it to more easily use the world's currency to shift contradictions and harvest globally.

The US economy is currently facing three major crises: inflation, recession, and a banking crisis. At the same time, the unresolved measures for the debt ceiling have increased the uncertainty of the dollar, leading to a rise in the proportion of other currencies, including the renminbi and the yen.

Under the SWIFT pricing system, the euro, pound, and yen rank second, third, and fourth globally, with respective shares of 32.64%, 6.19%, and 4.78%.

It is worth mentioning that both the payment shares of the euro and pound have decreased month-on-month, falling by 3.79% and 0.39% respectively. The high payment proportion of the euro is mainly because SWIFT statistics are based on sovereign states or regions.

Trade within European countries is also included in international trade settlements, which is equivalent to our country including trade between provinces in international settlements, naturally raising the payment share.

In addition, the reason for the euro's month-on-month decline is still internal. First, due to geopolitical issues, Russia and Ukraine are also traditional European countries, and more than half of the energy of European countries used to be imported from Russia. After the Russia-Ukraine crisis, the United States banned European countries from importing energy from Russia to sanction Russia.

Therefore, from the perspective of energy imports, the international settlement amount that originally belonged to the euro was replaced by imports from the Middle East and the United States. Naturally, this part of the euro was converted into dollars, which is also an important reason for the increase in dollar payments.

The second reason is the interest rate hikes in the United States, which led to the repatriation of dollars and the devaluation of the euro. Assets priced in euros also shrank accordingly. In 2022, the euro's exchange rate against the dollar fell by 11%. As an international reserve and foreign trade settlement currency, currency devaluation will lead to asset shrinkage, so it is reasonable that the payment proportion of the euro has decreased.After discussing the euro, let's now turn our attention to the third-largest payment currency, the British pound. When it comes to the United Kingdom, I can only say that it has undermined its own strength. Before Brexit, the UK had significant influence in Europe. Although there were disagreements with Germany and France over EU leadership, the UK was at least frequently visible on the global stage.

Now, with the UK's absence from the EU, it has naturally been marginalized. Currently, the UK's economy ranks only sixth in the world, having been surpassed by its former colony, India. Additionally, according to data from the International Monetary Fund (IMF) in January of this year, the UK is expected to be the only country in the G7 that will experience negative economic growth in 2023. The pessimistic economic outlook naturally leads to the devaluation of the pound, which is an inherent reason distinguishing it from the eurozone.

Looking at the data released in March, the significant increase in the share of the Japanese yen is quite striking, with its payment share at 4.78%, a sequential increase of 1.8%. So, why has the yen's share increased so dramatically in such a short period?

Contrary to the low exchange rates of the euro and pound, the yen's exchange rate has been on the rise since the Sino-American trade frictions began. This year, it has further increased from 120 yen per US dollar at the beginning of the year to 106 yen per US dollar as of May 1st.

The rise in the yen's exchange rate has increased its appeal as a global safe-haven asset. With the depreciation of other major currencies and the dual factors of a US banking crisis, buying yen and increasing its allocation has become an option. Therefore, the increase in the yen's share in trade payments is a natural outcome.

Apart from the exchange rate, the intensifying Sino-American rivalry has also increased global economic uncertainty. In such circumstances, having safe-haven assets as foreign exchange is very necessary, so the increase in the yen's share also reflects global economic concerns.

Furthermore, the change in the leadership of the Bank of Japan has heightened expectations for a shift in Japan's loose monetary policy. Measures such as interest rate hikes or a reduction in the money supply in Japan have led to the appreciation of the yen, which in turn affects its share as a foreign currency.

In addition to this, the renminbi also saw a sequential increase of 25.04% in March.

The rising star, the Chinese yuan.The people experienced a month-on-month increase of 25.04% in March, maintaining the status of the world's fifth-largest payment currency, with a share of 2.26%.

Some may argue that this payment share is seriously inconsistent with our country's position as the second-largest economy, after all, our country's GDP accounts for 18% of the world's total.

Of course, we must also recognize that this data is based solely on the SWIFT system, ignoring the Renminbi Cross-Border Payment System (CIPS). The CIPS system is both a cooperative and competitive relationship with SWIFT.

So, it is also important not to underestimate ourselves by neglecting this part of the settlement data. Some people say that CIPS also goes through the SWIFT system, so the data is already included, which is a significant mistake.

Let's first look at their concepts, starting with the differences between CIPS and SWIFT. More accurately, they belong to different conceptual categories, with CIPS being broader in scope than SWIFT.

I would like to introduce a concept here, the US Dollar Clearing System (CHIPS). Strictly speaking, this system is equivalent to the Renminbi Cross-Border Payment System (CIPS), and you can infer this from their names.

This image is taken from the official CIPS website.

However, our country's CIPS has gone a step further based on CHIPS.

The biggest difference between CIPS, CHIPS, and SWIFT: the former two can clear funds and transfer money; the latter only handles financial information and data, that is, network messages, and cannot clear and transfer funds.In simpler terms, CIPS has combined CHIPS and SWIFT to create a messaging and clearing system that belongs to our country.

CIPS not only has its own messaging function like SWIFT, but also has fund clearing and allocation functions like CHIPS.

Therefore, it is incorrect to say that CIPS settlement still needs to go through SWIFT. Of course, the data of the SWIFT system naturally does not fully include the messaging settlement data of CIPS.

Why is it not fully included? Because only direct participants can bypass the SWIFT messaging system, while indirect participants still need to cooperate with SWIFT for separate messaging and allocation.

According to the data on the CIPS official website, as of March 31, 2023, CIPS has a total of 79 direct participants and 1348 indirect participants, including 1005 in Asia, 225 in Europe, 48 in Africa, 30 in North America, 23 in Oceania, and 17 in South America.How significant is the data for direct participants? According to the latest data released on the official website of CIPS, by the end of 2021, the cumulative number of transactions processed exceeded 33.42 million, with an amount exceeding 79.6 trillion yuan. In 2022, based on this figure, the number of transactions and the amount increased by 31.7% and 21.5% year-on-year, respectively. The main channel role of cross-border RMB settlement services is gradually becoming apparent. From the previous data, we can roughly infer the situation so far this year.

In light of this, when we look at the global settlement of the RMB, we cannot only look at the data from the SWIFT system. If we include the data from CIPS, it is highly likely that it has already taken the second place in the settlement of sovereign country currencies, second only to the United States. The reason why the euro is not included here is that the euro is uniformly used in the European region, and the euro as a world trading currency does not live up to its reputation.

This year, CIPS settlement has achieved many important results. The first import liquefied natural gas transaction settled in RMB between China and France has been reached, the first RMB loan with Saudi Arabia has been completed, and RMB settlement arrangements have been established with Brazil and Argentina. Just the funds from Argentina alone amount to at least 120 billion RMB per year.

In addition, the RMB has also become the largest trading currency in Russia, and in Brazil, the RMB has surpassed the euro to become the second largest reserve currency in Brazil.

However, we should be more clearly aware that the internationalization of the RMB is still in its infancy, and we have a long way to go in the future. But the rise of China and the strength of the RMB have become an irresistible trend and the expectation of the people.

Do you think the SWIFT data can reflect the real settlement situation of the RMB? Welcome everyone to like, comment, and forward.