USAGE of the Chinese yuan in key international centers fell 10.5 percent last year, hitting a 29-month low in December 2016, a proprietary index compiled by Standard Chartered showed Tuesday.

    Earlier in the day, official data showed that Chinese hard currency reserves had fallen below the key US$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 Globalization 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 said that “tighter capital controls, lingering intervention worries and persistent depreciation expectations have kept genuine offshore yuan 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 offshore yuan deposits as China 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 China intensifies efforts to clamp down on capital outflows.

    It highlighted that last January too, China 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 China’s priority now was different.

    “January’s drop in foreign exchange reserves to below US$3 trillion further confirms that the pressure remains for China to prioritize currency stability and curb capital outflows over promoting renminbi internationalization,” 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. (SD-Agencies)