Page 36 - bne_May magazine 2023_20230503 BRICS

36 I Cover story bne May 2023
"The yuan and ruble are in high demand, so that vector will continue. China already pays in yuan for gas and partially for oil, there are settlements in the ruble as well," Novak told Russian state TV.
The ruble's share in Russia’s export payments rose to over 30% by the end of last year, surpassing the euro's share, and became equal to that of the dollar, according to the CBR’s "Review of the Russian Financial Sector and Financial Instruments" released in April.
Nevertheless, the dollar (and to a less extent the euro) continue to play the central role in Russia’s trade. Despite the ruble's surge in the share of foreign exchange deals, the overall weight of the dollar and euro in payments for both export and import supplies in Russia amounted to slightly less than 50% by the end of 2022. This figure is in line with the country's general foreign trade structure.
Dollar’s dominance in danger
Global de-dollarisation has been
a long-standing trope, but now there is some political will behind actually implementing it and US officials are starting to get worried.
Former Treasury Secretary Lawrence Summers warned of “troubling” signs that the US is losing global influence. And the current secretary, Janet Yellen, also warned that there are signs that the dollar will also lose its dominance of the global financial system at some point.
The dollar has come into focus as a US yoke under which EMs labour. The ubiquitous use of the dollar to settle international trade deals gives the US enormous power as well as the ability to borrow an almost infinite amount of money.
But this system is in danger of breaking down, warn experts. It will take a
long time, probably decades, but the weaponisation of the dollar in the US drive to punish Russia has unleashed some powerful tectonic forces that have already seen a flight from dollars and the yuan’s use in international trade double in just one sort year, albeit still taking only a small share.
www.bne.eu
The economic sanctions imposed on Russia and other countries by the US “put the dollar’s dominance at risk as targeted nations seek out an alternative,” Yellen said on April 25, 2023.
“There is a risk when we use financial sanctions that are linked to the role
of the dollar that over time it could undermine the hegemony of the dollar,” Yellen said.
“Of course, it does create a desire on the part of China, of Russia, of Iran to find an alternative,” she told CNN’s Fareed Zakaria in an interview. “But the dollar is used as a global currency for reasons that are not easy for other countries to find an alternative with the same properties.”
These concerns are music to the Kremlin's ears. Russia’s most effective counter
to Western sanctions would be to break the dollar’s hegemony over international
actively reducing their exposure to the US-controlled currency.
The yuan’s share of global trade finance has more than doubled since the invasion of Ukraine last year, an analysis by the Financial Times found. “A surge that analysts say reflects both greater use of China’s currency to facilitate trade with Russia and the rising cost of dollar financing,” the paper reported in April.
Russia’s trade with China is booming, topping a record $185bn in 2022, and
is expected to realise Moscow and Beijing’s mutual goal of $200bn this year – a year earlier than expected. Russian companies are already paying for most of their Chinese imports in yuan, and trading in yuan on the Moscow Currency Exchange has also soared as a result. Russian companies may be cut off from SWIFT, but they have access to China’s
“There is a risk when we use financial sanctions that are linked to the role of the dollar that over time it could undermine the hegemony
of the dollar”
trade. That would be far more damaging to US power than any sanctions the West can impose on Russia.
"The Americans have started the de-dollarisation process. Already now this process is being analysed particularly by American political analysts and economists with deep concern," Russian Foreign Minister Sergey Lavrov told a press conference following a visit to New York as part of Moscow's presidency of the UN Security Council.
Yuan on the rise
The other big EMs looking for an alternative to the dollar are also turning to the yuan as the obvious replacement. The US decision to weaponise the dollar in its sanctions war with Russia has shocked central bankers around the world, undermining their confidence in the currency and galvanising them into
Cross-Border Interbank Payment System (CIPS) that allows direct transactions between the two countries, and could eventually offer an alternative to SWIFT. Total settlements on CIPS came to CNY97 trillion ($14 trillion) in 2022, central bank data showed, a year-on- year increase of 21%.
Another factor pushing traders to switch to the yuan has been the extremely rapid rise in US interest rates, which has increased the cost of using the dollar. The Fed has been aggressively hiking at its fastest pace ever – the Fed hiked rates nine times since last year – in an effort to contain soaring US inflation, while the People’s Bank of China (PBC) has
cut rates twice in the last year, making borrowing in yuan cheaper.
Of course the yuan (or even the euro) is a very long way away from pushing