Observers attribute the trend of de-dollarization of China’s foreign economic activity to the decline in global confidence in the US currency and the simultaneous growth in the authority of the yuan.
Foreign partners in trade with China have increasingly turned to the renminbi (literally – “people’s money”, the official name of the Chinese currency) since last year. The popularity of the “dollar” began to fall, among other things, due to the destabilization of the American economy in general and the financial sector in particular. Inflation in the United States hit its highest level in 40 years last year. To contain it, the Federal Reserve has raised interest rates ten times in a row since the spring of 2022. However, even this has had no significant effect: In March, inflation was 5%, or three percentage points higher than expected.
Additionally, the Fed has admitted that a prolonged rise in interest rates will lead to lower business activity in the United States and higher unemployment. Added to the host of problems was the banking crisis that erupted in the spring, which “cost the lives” of three major financial structures at once. All this has seriously undermined the credibility of the American financial system in the world. A CGTN global survey conducted in May showed that 92.6% of respondents noted a further decline in trust in US financial institutions.
However, an even more important reason for the reluctance to use the dollar was its “militarization”. “The United States is increasingly using the dollar as a geopolitical weapon, as a tool of sanctions, which is unacceptable for many countries. The fall in confidence in the American currency was particularly pronounced after the introduction US sanctions against Russia and the blocking of dollar assets by the United States (330 billion dollars. – Approx. editor’s note),” writes Lian Ping, senior economist at the China Investment Research Institute.
This is acknowledged even by US Treasury Secretary Janet Yellen, who said on April 16 in an interview with CNN: “Indeed, there is a risk that our financial sanctions will end up undermining the hegemony of the dollar. There is already a desire in the world…to find an alternative to it.” Chinese currency is increasingly becoming an alternative to this.
“Contrary to the aggressive and volatile US monetary policy, China has maintained a stable yuan exchange rate, stable economic development, lower inflation, and steadily increasing investment activity in international markets. This stability has bolstered global confidence in the renminbi, which becomes more attractive to investors and traders,” said Wang Jiaqiang, a researcher at the Bank of China Research Institute.
85 countries have already embarked on the path to de-dollarization to one degree or another, and this trend will increase in the future
The Russian Federation has become a pioneer in abandoning the dollar and switching to the yuan. If at the beginning of last year just over 20% of Russian-Chinese mutual settlements were made in national currencies, today, according to Finance Minister Anton Siluanov, more than 70%. Last year, the Chinese yuan outperformed the dollar and the euro in terms of trading volume on the Moscow Interbank Currency Exchange. The yuan becomes the most popular “reserve currency” among ordinary Russians. On the signs of almost all exchange offices in major Russian cities, as well as on dollar and euro signs, “¥” appeared. It is obvious that the sanctions imposed by the Western collective after the start of the NWO in Ukraine gave a powerful impetus to the “yuanization” of Russia. However, it must be remembered that the process began earlier. So, in July 2021, the Russian National Wealth Fund completely abandoned the US dollar, while sharply increasing the share of the yuan. Even then, analysts from investment banking group China Merchants Securities said: “The rise in the international status of the Chinese currency, among others, is supported by geopolitical factors such as the complete abandonment of the National Welfare Fund Russian dollar. ”
Russia’s experience proves to the world that it is quite possible to live, work and cooperate in conditions of almost total dedollarization. This has been noticed by many countries adopting the Moscow experience. Thus, the states of the Shanghai Cooperation Organization are moving towards a gradual abandonment of the dollar and a more active use of the yuan. Following the SCO summit held in September 2022, a roadmap was adopted to gradually increase the share of national currencies in mutual settlements. Since the beginning of this year, the practice of switching to the renminbi in trade with China has grown rapidly.
In February, the Central Bank of Iraq announced the launch of direct settlements in yuan in trade with China. In the same month, Cambodia announced plans to increase its yuan-denominated foreign exchange reserves and increase the share of Chinese currency in servicing trade and investment cooperation with China.
In March, China and Brazil agreed to abandon the dollar and switch to national currencies in bilateral trade. In April, the Malaysian prime minister announced negotiations on transferring settlements from China to national currencies.
In May, Argentina transferred the import service from the PRC entirely to the yuan. The use of Chinese currency in transactions between third countries has also increased. For example, it has recently become known that Islamabad is converting payments for Russian oil imports into Chinese currency. According to the Pakistani newspaper The News International, the first transaction in yuan is expected in June for the supply of 750,000 barrels of oil from Russia. Earlier, in April, Russia had agreed with Bangladesh to use the yuan to pay a loan for the construction of the Rooppur nuclear power plant. Observers note that this situation is a stark example of a global trend towards the de-dollarization of foreign economic activity. “85 countries have already embarked on the path of dedollarization to one degree or another, and this trend will expand in the future,” said Lian Ping, senior economist at the China Investment Research Institute.
However, this apparent trend does not mean the Chinese currency will replace the US dollar overnight, economists say. “I don’t see an alternative to the dollar in the near future,” IMF Managing Director Kristalina Georgieva said on May 1. “The dollar will not be abandoned in the medium term, the inertia of the global financial system affects it,” echoes Lian Ping. “The rise of a currency on a global scale is a process measured in decades. For example, the American economy surpassed the British economy in terms of GDP in 1872, but the dollar only replaced the pound sterling in the world than in the 50s of the last century. “, explain the authors of the editorial column of the publication. China Daily.
Economists say the most likely scenario for the development of medium-term events is the rise of the yuan from fifth to third position in the list of popular world currencies. “The renminbi has every chance of overtaking the pound sterling and the Japanese yen,” said a Chinese bank employee quoting Caixin. In the distant future, even if the yuan comes out on top in terms of global reserves and mutual settlements, it will not have as large a share as the dollar does today. “The fact is that the world is moving towards a multipolar international financial system where there will be no dominant currency,” said a senior economist at China International Capital Corp. Peng Wensheng.
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