Wednesday 7 October 2015 12:48 pm

What China's yuan surpassing Japan's yen means

Over the past few months, global investors have watched China grapple with financial turmoil and the devaluation of its currency. This is in contrast to the news that China’s renminbi has surpassed the Japanese yen, securing the spot as the world’s fourth-most-used payment currency.

In August 2012, the renminbi was sitting in the 12th spot, with a 0.84 per cent share of the world's payments currency market. But since then it's steadily gained more market share. This August, the yuan surpassed the Japanese yen, securing a 2.79 per cent share of the market.

This increased market share could not have come at a better time, the use of currencies is often an indicator for the underlying strength of a country’s economy, and right now China has a lot to prove to many perhaps sceptical international players.

Read more: China's yuan becomes fourth most-used payment currency

Irrespective of China’s economic position over the last 30 days, the momentum of the country's economy in comparison to the Japanese economy is still a broad correlation. Comparing these economies doesn’t produce standalone evidence for a rise in transactions, as other factors play a role in their respective growth, such as demographics. Inevitably, China’s population growth will yield an advantage to the country currency usage, especially when compared to a shrinking and aging population in Japan.

But it’s important to note that the growth of renminbi usage has not gone unnoticed. Much of today’s economic dialogue focuses on China’s every move. A few years ago a similar change in China's share of the world's payment currency market might not have elicited the same reaction.

Read more: China is key to securing London's future

As such, reading news of this fourth-place spot should not surprise investors. China hopes on an international level to improve its own image as a steadfast economy and dominant international player.

While the renminbi's gain on the yen has economic validity, China must still work to position itself as a global economic leader. Despite the temporary setback of devalued currency, we can expect China to leverage its new payment currency ranking to cement its credibility in international markets.