China is actively using its trading advantages to push partners toward using the yuan more. Beijing aims to challenge the dollar’s dominance in the global monetary system to reduce dependence on dollar assets and blunt the risk of a financial squeeze from the United States, according to the South China Morning Post.
Analysts from the publication highlighted a recent agreement between China and Brazil on yuan usage in bilateral deals. Brazil stands as Beijing’s tenth-largest trading partner and a major supplier of iron ore and soybeans. In 2022, bilateral trade reached a record of 150.5 billion dollars.
On March 29, the two nations agreed to establish an offshore clearing house. The move would enable them to reduce reliance on the US dollar in bilateral trade and accelerate yuan exchanges, a development previously noted by the G1 portal. By the end of 2022, Brazil’s yuan-denominated foreign exchange reserves rose to 5.37 percent, surpassing its euro holdings, though US dollars still accounted for more than 80 percent of Brazil’s foreign currency savings, according to SCMP.
The rise of yuan transactions with South America’s largest economy signals Beijing’s effort to avert a financial squeeze caused by a shift away from the United States, the publication argues. Yet the authors also stress that yuan convertibility remains more limited than the dollar or euro, and that China maintains strict capital controls, which constrain broader adoption.
Today, the yuan accounts for about 2.19 percent of global payments, 3.5 percent of global foreign exchange transactions, and 2.69 percent of central bank reserves. It also represents 12.8 percent of the IMF’s currency basket for special drawing rights.
Russia and settlements in yuan
The Kremlin, Russia being China’s ninth-largest trading partner, has also expanded its yuan presence in foreign exchange reserves and sovereign funds. In 2022, yuan share in Russia’s export payments rose from 0.5 percent to 16 percent, while the ruble share climbed from 12 percent to 34 percent, as reported by the Bank of Russia. In August 2022, Russia became the third country in the world to conduct offshore yuan payments outside China, according to SWIFT data cited by media outlets.
Analysts note that short-term dedollarization reflects cracks in the international monetary system that has been dominated by the US dollar, amid a tense geopolitical backdrop, according to research from a top Chinese investment bank. Russia’s plan to dedollarize its economy was introduced in 2018 after sanctions began to bite. Officials have repeatedly cited sanctions as a key reason to reduce dollar use in foreign trade, a trend intensified by Western actions during the conflict in Ukraine.
In a March meeting with Chinese President Xi Jinping, Vladimir Putin affirmed Moscow’s support for moving toward yuan in foreign trade agreements with Asian, African, and Latin American partners.
Yuan expansion
China has reported double-digit growth in yuan usage for trade and investment in recent years. The Ministry of Commerce of the People’s Republic of China stated that cross-border trade in yuan rose about 37 percent in 2022, reaching 7.92 trillion yuan, roughly 1.15 trillion dollars. Direct investment in yuan grew 16.6 percent year on year to 6.76 trillion yuan.
Analysts quoted by SCMP foresee broader yuan deployment for investments among Belt and Road participants. The trend extends to cross-border digital payments and bilateral crude oil trade with Middle Eastern partners. Notably, Iraq announced in February that it would conclude its trade in yuan.
Experts interviewed for the piece described this as a long-term shift that could eventually align the international status of the US dollar with its economic weight, signaling a gradual rebalancing of global finance.
Irreversible process
A columnist from Le Figaro, Renaud Girard, contends that dedollarization will not happen overnight but is clearly an irreversible process. He argues that by turning its currency into a tool of political leverage, the United States has inadvertently sparked a worldwide move away from the dollar.
Girard points to the freezing of dollar reserves by the Bank of Russia amid the Ukraine conflict as an example. He notes that some countries are already reducing dollar trade in response. As evidence, he cites current moves by Russia and Saudi Arabia, including a recent oil bill priced in yuan, and highlights BRICS plans to explore a common currency for mutual payments and a Chinese-led alternative to SWIFT in the realm of mobile interbank payments.