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bne May 2023 Cover story I 37
the dollar off its pedestal: 84.3% of international trade deals in February this year were still settled in dollars, down from 86.8% a year earlier, whereas the yuan’s share of total trade has risen from less than 2% in February 2022 to 4.5% a year later, according to the FT. Those gains put China’s currency in close contention with the euro, but even that only accounts for 6% of total global trade deals.
Nevertheless, currency traders were still shaken by the sudden jump in the use of the yuan, and 4% in their world of multi- billion dollar trades is still a substantial change and a win for Beijing’s campaign to boost the yuan’s use.
While the use of yuan in total international trade remains tiny, it is already starting to dominate trade at a regional level, especially in Asia. Russia already settles the largest part of its trade with China in yuan, but China
too has just seen the yuan overtake the dollar in its own international trade.
The Chinese yuan surpassed the dollar to become the most widely used cross- border currency in March, according
to Bloomberg, hitting a historic high
of 48% at the end of March, against practically zero in 2010. Meanwhile, the share of the dollar in Chinese foreign trade fell from 83% to 47% over the same period. The analysis included all types of transactions, including securities trading between the capital markets of mainland China and Hong Kong.
Despite the increasing role of the yuan,
the total volume of world trade in 2022 amounted to $32 trillion, while the total volume of China's foreign trade during the same period was CNY42.07 trillion (over $6.2 trillion). However, in January 2023, the PRC Customs Administration announced that trade turnover between Russia and China grew by 29.3% in 2022 to a record $190.27bn.
But there are still many headaches slowing the yuan’s rise. The PBC has been pushing the use of yuan for years, but that ended in a devaluation and sever capital flight in 2015, after which the regulator introduced strict currency controls. Those have lessened the appeal of China’s currency for other countries. A comprehensive set of derivative products is also still needed for hedging currency movements that are par for the course in trade financing. While the use of yuan in trade has doubled to 4%, its use in currency deal done via SWIFT has remained stuck
at 2%, reports the FT. As a result for the moment, the PBC is focusing on promoting the yuan in the settlements of commodity trades and leaving the more generic currency trading or use as a store of value in reserves for later.
BRICS all in
President Vladimir Putin has repeatedly called for a switch away from the dollar but has joined Beijing in encouraging Russia’s leading trade partners to adopt the yuan. During China’s President Xi Jinping three-day trip to Moscow in March Putin repeated that half of Russia’s trade with China is settled in national currencies
and other members of the Russian- led Eurasian Economic Union (EAEU) should think about doing the same.
Since the start of the war there has been a rapid yuanisation of the Russian economy with the CBR switching
from the dollar to the yuan for market interventions and regular Russians changing their hard currency accounts from dollars and euros to yuan.
Last month Brazil signed off on a similar deal with China that allows
all the South American countries to settle trade deals in yuan and their own currencies. A pool of EM trade deals
in non-dollar currencies is developing with the yuan as the anchor currency that will allow of multi-currency trade outside of the dollar world.
“Every night I ask myself why all countries have to base their trade on the dollar,” Brazil’s President Luiz Inácio Lula da Silva said in an impassioned speech at the New Development Bank in Shanghai, known as the “BRICS bank”.
“Why can’t we do trade based on our own currencies?” he added, drawing loud applause from the audience of Brazilian and Chinese dignitaries. “Who was it that decided that the dollar was the currency after the disappearance of the gold standard?”
Like Russia, Brazil’s bilateral trade has ballooned over the past decade to reach $150.4bn last year – not far behind that of Russia – with China buying Brazil’s agricultural commodities and minerals and investing in the Latin American country’s large consumer market and infrastructure sector.
Like Putin, Lula called on Emerging Markets (EMs) to work towards replacing the dollar with their own currencies in international trade, lending his voice to Beijing’s efforts to end the greenback’s dominance of global commerce.
India has also launched a campaign to reduce the share of the dollar in its international trade and settle deals in national currencies, although Reuters
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