Data from China’s State Administration of Foreign Exchange (SAFE) revealed that the Chinese yuan (CNY) surpassed the United States dollar (USD) as the most-used currency in China’s cross-border transactions last month.
Cross-border payments and receipts in yuan surged from the equivalent of $434.5 billion in February to a record $549.9 billion in March, according to calculations by SAFE.
The Chinese currency was used in 48.4 percent of all cross-border transactions, reflecting a trend of shifting away from the dollar, as well as Beijing’s efforts to promote the use of the yuan. Moreover, the share of the greenback in China’s international settlements dropped from 48.6 percent in February to 46.7 percent in March.
According to Reuters, the volume of cross-border transactions covers both current and capital accounts and although the share of the CNY in global settlements is still relatively low, it has been steadily on the rise over the past several years.
China has been attempting to steer clear of USD use and the efforts have sped up in international trade against the backdrop of sweeping sanctions imposed by Western nations against Russia, which is considered a major global energy producer and exporter. (Related: BRICS nations rapidly working to create common currency to counter US dollar’s global hegemony.)
The USD has started to see its demise in China’s international trading, but this is not the first instance that the yuan has taken over. Earlier in April, the CNY also replaced the USD as the main trading currency in Russia, India and Argentina.
Russian President Vladimir Putin suggested that the yuan should be used more widely, 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 shows that the yuan has become a major player in Russia’s foreign trade.
According to Bloomberg, the CNY overpowered USD in monthly trading volume in February for the first time, and the difference became more pronounced in March. Before the invasion, the yuan’s trading volume on the Russian market was negligible. The additional sanctions affected the few banks in Russia that retained the ability to make cross-border transfers in dollars and other currencies of countries branded “unfriendly” by Putin’s government.
Russia has deepened its ties with China since the Feb. 2022 invasion prompted a break in relations with the West. In March, Chinese President Xi Jinping made Moscow his first visit abroad after his reelection and promised the Kremlin expanded cooperation in the areas of trade, investment, supply chains, mega projects, energy and hi-technology.
Moreover, Indian policymakers have taken steps toward shifting away from USD and resorted to rubles and rupees in doing trade with Moscow.
According to Zamir Kabulov, director of Russia’s Ministry of Foreign Affairs, the transition to national currencies is a fundamental decision while there is a need to maintain balance, as the sales volume of Russian products to India is five times higher than that of India to Russia. How this decision is made will affect the Russian economy, increase the global process of de-dollarization and impact Russia-India trade turnover.
A mutual decision to refuse the USD and Euro trade with Russia is considered a necessary measure by New Delhi because conducting financial transactions with Russian companies and banks has become impossible or extremely difficult due to sanctions. In addition, it is financially risky for Russian exporters to keep proceeds received from sales in hard currency due to the risks of blocking.
Meanwhile, China’s push for greater use of CNY in bilateral trade settlements has made it to South America, with Argentina also to start paying Chinese imports in yuan. Economy Minister Sergio Massa confirmed on Wednesday, April 26, that Argentina had “activated the swap.” Massa said Buenos Aires will pay $1.04 billion of Chinese imports in April in yuan instead of U.S. dollars.
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