Yuan surpasses dollar and euro for the first time in China’s cross-border settlements

Beijing began to settle accounts with its own trading partners in yuan more often than in dollars and euros. This is reported RT with reference to the information of the Chinese State Monetary Administration.

According to experts, this is how China expects to reduce its vulnerability to possible restrictions from the West. After Washington and the European Union blocked almost half of Moscow’s gold and foreign exchange reserves, large-scale confidence in the financial systems of the United States and Europe was significantly undermined, experts believe.

Against this background, Russia, China and a number of other participants in world trade began to pay more actively to each other in their currencies. And although the process of de-dollarization of the international economy can take more than one decade, analysts consider it inevitable.

Thus, Beijing has reduced the use of dollars and euros in its own cross-border settlements to a record level and now pays in yuan in almost half of the cases. According to the Chinese State Monetary Administration, last month the share of the yuan in China’s global financial transactions reached a historic high of 49.6 percent. At the same time, China conducted less than 47.9 percent of transactions in dollars and euros – this was the lowest level for the entire time of observations.

Interestingly, back in 2010, Beijing almost did not use the yuan in foreign trade. At that time, about 86-90 percent of China’s trade turnover was accounted for by payments in dollars and euros. But then this figure began to systematically decline.

“Over the past few years, the volume of international payments in Chinese currency has been growing at a faster pace. Beijing uses the yuan both in purchasing oil in the Middle East and in trade with various countries – from Brazil to Russia. Recently, Argentina also announced plans to pay for Chinese goods in yuan on a regular basis. This internationalization of the currency is in the interests of the Middle Kingdom and reduces the vulnerability of the PRC to US financial sanctions”– Elena Belyaeva, an analyst at Freedom Finance Global, explained.

According to official statistics, the process of Beijing’s refusal to settle in US and European currencies intensified significantly in 2018-2019. At that moment, Washington unleashed a trade war with China – the American side accused China of illegally obtaining technology from the United States and sharply raised duties on goods imported into the United States from China, and the Chinese side began to introduce retaliatory measures.

Beijing became even more active in using its own currency in foreign trade last year after Washington and the European Union imposed unprecedented economic sanctions against Russia, for example, they froze half of Moscow’s gold and foreign exchange reserves (GFR). The head of the Russian Ministry of Finance, Anton Siluanov, said that by his own actions the West “chopped off the branch” on which the entire system of world settlements was built. Under these conditions, a gradual rejection of transactions in US and European currencies is needed in order to avoid possible new frosts in the future.

“Russian gold reserves were frozen and, in fact, confiscated. Settlements in dollars, euros and other so-called reserve currencies turned out to be blocked, which, as it turned out, are absolutely not reserve currencies … Trust in such units of account as the dollar and the euro was undermined because the issuing countries of these currencies manipulate them, not only by printing in unlimited volume, but also by using them as a lever of pressure in foreign policy issues”– said the head of the Ministry of Finance of Russia.

Siluanov added that as a result, Moscow, Beijing and a number of other countries began to increasingly carry out settlements in national currencies or in the monetary units of friendly states they trust. The Ministry of Economic Development found out that if at the beginning of last year payments in American and European currencies accounted for about 90 percent of Russia’s trade turnover, by the end of 2022 the share of the dollar and the euro had decreased to 48 percent – more than half of the transactions the Russian side began to carry out in rubles and yuan .

“This year, the trend continues… Russian entrepreneurs are actively using the yuan and the ruble in various variants and combinations. As a result, we expect that by the end of this year, the share of the dollar and the euro (in Russian trade. – Approx. REN TV) will be reduced even more. Depending on different scenarios, this will be 10-15% of the total turnover.”– said Vladimir Ilyichev, Deputy Head of the Ministry of Economic Development.

Russia and China are already conducting over 80 percent of mutual trade transactions in their own currencies, Russian leader Vladimir Putin said earlier. According to the President of the Russian Federation, Washington, in an attempt to achieve momentary political goals, “undermines its own power” in the field of international finance.

According to the International Monetary Fund, by the beginning of this year, the share of the dollar in international gold reserves fell to 58.36 percent, the lowest figure in the last 27 years. About 20.47 percent of global money reserves were held in euros at that time, while only 2.69 percent were held in yuan.

A similar situation is noticeable in international settlements. According to the latest information from the SWIFT global interbank system, in April of this year, the yuan, with a share of 2.29 percent, ranked fifth in the ranking of the most used currencies on the planet and was second only to the Japanese yen (share – 3.51 percent), the British pound (6.58 percent ), the euro (31.74 percent) and the US dollar (42.71 percent). However, in the coming years, the yuan is able to reach the third position in this rating.

“Expanding the use of the yuan in cross-border payments is hampered by the fact that it is not a freely convertible currency – Beijing retains control over it … Nevertheless, the People’s Bank of China has already promised to increase the openness and accessibility of the PRC’s foreign exchange and financial markets, as well as expand the range of products, offered on offshore markets in yuan. These measures will create prerequisites for increasing the role of the yuan in international settlements.”– said Elena Belyaeva, analyst at Freedom Finance Global.

At the same time, she stressed that the processes of changing the dominance of one currency over another are slow and can take decades. The head of the Russian Ministry of Finance Anton Siluanov thinks the same way.

So, according to Siluanov, at the moment, world prices for many types of goods, including oil, are still quoted in the American currency. Because of this, the head of the Russian Finance Ministry believes that even taking into account the current policy of Washington, it is too early to talk about the complete loss of the dollar’s reserve status, but large-scale de-dollarization is inevitable.

“We are used to the American currency, but the process of transforming and replacing the dollar with other, more reliable units of account has already begun. It is clear that this is also a slow process. Of course, it is impossible to say that tomorrow the dollar will not be needed by anyone. However, other currencies are now clearing it field and take up more and more space”– concluded Anton Siluanov.

Earlier, Russian Prime Minister Mikhail Mishustin said that 70 percent of cross-border settlements between Russia and China are carried out in national currencies – rubles and yuan.