Trade in China´s yuan is reaching new highs
FACTA
Trade in China´s yuan is reaching new highs. In reaction to the Russia´s full-scale invasion of Ukraine West cut Russia from the SWIFT international payment messaging system and froze the reserves of its Central Bank. Unprecented measures led Russia to shift to other, non-Western currencies, of which yuan is the most visible. At the end of 2023 one third of Russian foreign trade was settled in yuan. Yuan currently accounts for less than 7% of all foreign-exchange transactions and approximately 4,5% of global payments but recent developments suggest strong momentum for this Asian currency. Besides the Russian forced shift towards yuan, other countries, such as Saudi Arabia, Brazil and Argentina also sealed considerable deals with China settled in yuan instead of dollar. Yuan´s limitations for the role of the international currency currently lie in its ability to work as a storage of value which is currently weakened by country´s capital controls and yuan exchange rate regulation by the Chinese central bank.
FUTURA
Although the West will likely attempt to limit the position of the yuan, countries in the Global South are interested in preventing the dominance of the dollar in foreign trade from remaining unchallenged, as this poses risks for nations that do not align with the political orientation of Western democracies and affects their decision-making sovereignty. BRICS leaders have previously considered the idea of a common BRICS currency, but transitioning to an existing currency, such as the yuan, would allow them to avoid the issues associated with creating a monetary union. With a share of one-third of global GDP, BRICS could challenge the established global economic system if it shifts away from dollar-denominated trade. However, given the current distribution of global consumption and the importance of Western markets, we are unlikely to see rapid de-dollarization of international trade. Instead, we can expect a longer-term sustained effort by BRICS countries to reduce dependence on the dollar in international trade.
