Bye Bye, renminbi: the globalization of the RMB is truly over.

• Author: Steil, Benn

"The globalization of the yuan seems remorseless and unstoppable," pronounced The Economist in April 2014. Indeed, use of the Chinese yuan, or renminbi, in global payments would double between then and August 2015, to 2.8 percent of the total, making China's currency the fourth most used in the world.

Since then, however, this growth has been almost entirely reversed. The RMB's share in global payments has fallen to 1.6 percent, knocking it down to number seven. Its use in global bond markets is down 45 percent from its 2015 peak. RMB deposits in Hong Kong banks are also down by half. And whereas 35 percent of China's cross-border trade was settled in RMB in 2015 (with most of the remainder in dollars), that share has fallen to about 12 percent is today.

The RMB's reversal of fortune reflects four factors in particular.

For starters, whereas the dollar value of the RMB rose nearly every year from 2005 to 2013--by 36.7 percent in total--it has since fallen steadily, discouraging speculators. Since 2014, the exchange rate has weakened by an increasing amount every year, and is now down over 11 percent since the drop began, despite intervention by the People's Bank of China to support the currency (not to hold it down, as U.S. President Donald Trump has alleged). As a result, investors have abandoned the idea that RMB appreciation is a one-way bet. Capital inflows driven by that bet are over.

The RMB's fall against the dollar reflects the slowing of China's debt-fueled economic growth and the accumulation of default risks. Chinese residents and companies are, not surprisingly, seeking new ways (legal and otherwise) to move money out of the country.

In April, People's Bank of China Deputy Governor Yi Gang tried to reassure nervous investors in a presentation in New York by saying that the level of non-performing loans in the Chinese banking sector had "pretty much stabilized after a long time of climbing." This was, he said, "a good development in the financial market."

But Yi was spinning. Non-performing loans have stabilized as a percentage of total bank loans, but only because the number of loans has continued to rise. Many of these new loans are to deadbeat clients, and can be expected to go sour in due course. In fact, in absolute terms, non-performing loans grew by $35 billion in 2016, reaching $220 billion. Banks are also using accounting tricks to hide trillions in further exposures.

In an effort to stem the weakening of the exchange...