China is steadily ramping up efforts to boost the appeal of the yuan as an alternative currency in international trade, as well as s a reserve currency in the face of US dollar hegemony. As per Kavan Choksi, right from the Middle East to South America, an increasing number of nations are exploring ways to sidestep the long-dominant United States currency in lieu of China’s yuan. They are also increasing their gold reserves and settling bilateral trade in local currencies.
Kavan Choksi talks about the nations that are using China’s yuan more
For years Beijing has continued to prioritize the increase of the overseas use of the yuan, especially in the face of US dollar hegemony. Their push has involved multiple attempts to make China’s yuan an appealing alternative as a reserve currency. China has put emphasis on enhancing the share of its currency used in trade finance, central bank reserve assets, foreign exchange transactions and international payments.
In the March of 2023, the yuan became the most widely used currency for cross-border transactions in China, and overtook the dollar for the first time. The official data reflects the fruits of Beijing’s efforts. Today there are many countries across the planet that is increasing the use of China’s yuan, such as:
- Russia: The economy of Russia has been deeply damaged by Western sanctions owing to its invasion of Ukraine. This has led Moscow to adopt broader use of the yuan, with Washington-led curbs restricting its access to the US dollar. Russia has made considerable use of the yuan subsequent to a wave of financial sanctions that have made nearly half of its foreign currency reserves frozen. These sanctions have also got multiple Russian banks removed from the interbank messaging service Swift, which facilitates international payments. In the October of 2022, yuan ended up surpassing the US dollar for the first time to become the most traded foreign currency on the Moscow exchange. In April, the exports of China to Russia went up by 153.09%, while imports rose by 8.06 per cent.
- Saudi Arabia: Saudi Arabia is considering accepting yuan instead of US dollars for oil sales. This news came after President Xi Jinping said during a visit to Saudi Arabia that there must be a new paradigm for energy cooperation. He called for enhancing the role of the yuan as a currency for trading in oil and gas.
- Argentina: In late April, Argentina said that it shall start to pay for Chinese imports in yuan rather than US dollars. The country was using the yuan to pay for US$1.04 billion worth of Chinese imports in April, and targeted about US$790 million worth of goods per month from May. The decision of the third-largest economy in Latin America to lean towards yuan is likely to be instrumental in its internationalization.
As per Kavan Choksi, while the steps taken by the countries discussed above are certainly impactful, these advances remain quite small when compared with the ubiquity of the US dollar. Even today, the US dollar is used in about 90% of foreign exchange transactions around the world.