Russia has once again emphasized the importance of using local currencies for trade instead of the US dollar as the country grapples with significant sanctions related to the Ukraine war. During a summit, President Vladimir Putin highlighted Russia’s trade with China, noting that over 80% of commercial transactions between the two countries are now settled in the Chinese yuan and Russian ruble.
This appearance at an international event was Putin’s first since the failed mutiny by the Wagner mercenary group two weeks ago. Speaking at the annual meeting of the Shanghai Cooperation Organization (SCO), an intergovernmental organization seen as an alternative to Western-led groupings, Putin expressed Russia’s resistance to external pressure, sanctions, and provocations.
The shift towards local currencies for trade is not unique to Russia. The yuan surpassed the dollar as the most used currency for Chinese cross-border transactions in March this year. This data comes from a Reuters calculation of official Chinese data. Additionally, Putin noted that the Russian ruble was used in 40% of all export transactions with SCO countries. The SCO, founded in 2001, includes China, Russia, India, Pakistan, Kazakhstan, the Kyrgyz Republic, Tajikistan, Uzbekistan, and Iran.
The move away from the US dollar is a significant endeavor due to the dollar’s status as the world’s reserve currency since the Second World War. However, the extensive sanctions against Russia have prompted other countries to seek alternative currencies for trade. China, in particular, has been aiming to increase the global circulation of the yuan. As a result, countries facing sanctions, like Russia, along with emerging nations like Argentina, have started utilizing the yuan for trade, primarily with China.
Chinese President Xi Jinping also supports the idea of expanding the use of local currencies for trade among SCO countries. In his speech at the summit, Xi expressed a willingness to work with all sides to move towards the right direction of economic globalization, oppose protectionism, unilateral sanctions, and the overstretching of national security. He further emphasized the need to reject the establishment of barriers, decoupling, and the severing of supply chains.
This strategic push towards dedollarization aligns with China’s ambitions to enhance the international standing of its currency. By promoting the use of local currencies in trade, countries like Russia and China are seeking to reduce their reliance on the US dollar-dominated global financial system.
As the world continues to witness the trend of dedollarization, it remains to be seen how other countries will respond and whether alternative currencies will establish themselves as viable alternatives to the US dollar in global trade. Nonetheless, the increasing use of local currencies like the yuan and ruble highlights the shifting dynamics of the international financial landscape.
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