According to recent data from the Chinese State Administration of Foreign Exchange, the renminbi (yuan) has surpassed the US dollar as the most-used currency in China’s overall cross-border transactions. From April to June, the renminbi accounted for 49% of Beijing’s international settlements, marking the first time it has topped the greenback in this regard.
This increase in the use of the renminbi can be attributed primarily to two factors: the opening up of the capital market and increased trade with Russia. The renminbi’s growing prominence is seen as a result of China’s efforts to promote its currency and decrease reliance on the US dollar. In fact, the Chinese government has allowed trade payments to be settled in yuan since 2009, encompassing freight, services, current account transfers, and capital transaction settlements.
In terms of the actual numbers, yuan-denominated international payments grew by 11% year-on-year to reach $1.51 trillion, while dollar payments declined by 14% to $1.4 trillion in the last quarter. Moreover, cross-border settlements in the Chinese currency totaled 42.1 trillion yuan ($5.85 trillion) in 2022, with capital transactions accounting for over $4 trillion, or approximately 75% of the total. Meanwhile, current-account transactions, predominantly trade-related, constituted the remaining portion.
Despite the recent increase in the yuan’s usage, its share in global settlements is still relatively low. However, the Chinese government’s ongoing efforts to promote its currency suggest that this trend may continue in the coming years. Additionally, China’s attempts to distance itself from the dollar in international trade have accelerated, particularly in response to the sweeping sanctions imposed by Western nations on Russia – a major global energy producer and exporter.
This shift away from the dollar has been reciprocated by Russia, which has also been increasing its use of alternative currencies in transactions. Russian President Vladimir Putin has advocated for wider use of the Chinese yuan, not only in trade with China but also in Russia’s transactions with countries in Africa and Latin America. The latest data from the Bank of Russia highlights the yuan’s growing significance in Russia’s foreign trade.
Furthermore, other countries like India have taken steps towards reducing dependence on the dollar by opting for currencies such as the ruble and rupee in bilateral trade with Moscow. These developments indicate a broader trend of countries seeking to diversify their currency choices and reduce their reliance on the US dollar.
While the yuan’s rise as a prominent currency in international settlements is noteworthy, it is important to note that its share is still relatively modest compared to the dollar. Nonetheless, China’s efforts, coupled with geopolitical factors and the desire to reduce reliance on the dollar, suggest that the renminbi’s influence in global transactions may continue to grow in the coming years.
Source link
