Yuan squeezing out dollar in China’s bilateral trade

The yuan surpassed the US dollar to become the most-used currency in China’s overall cross-border transactions from April to June, Nikkei reported this week, citing statistical data from the Chinese State Administration of Foreign Exchange.

According to the outlet’s analysis of the data, the increased use of the renminbi was driven mainly by the opening up of the capital market and more trade with Russia.

Statistics showed the yuan was used in 49% of China's cross-border transactions last quarter, topping the greenback for the first time. Yuan-denominated international payments grew 11% on the year to $1.51 trillion, while dollar payments declined 14% to $1.4 trillion.

Official data also showed that cross-border settlements in the Chinese currency totaled 42.1 trillion yuan ($5.85 trillion) in 2022. Capital transactions accounted for over $4 trillion, or about 75%, with current-account transactions such as trade making up the rest.

Although the share of the yuan in global settlements is still relatively low, it has been steadily on the rise over the past several years due to Beijing’s efforts to promote the use of its currency. The Chinese government first allowed trade payments to be settled in yuan in 2009, including settlements for freight, services and current account transfers, as well as capital transaction settlements.

China’s attempts to move away from the dollar in international trade have sped up against the backdrop of sweeping sanctions imposed by Western nations against Russia, a major global energy producer and exporter. Indian policymakers have also taken steps towards shifting away from the greenback to rubles and rupees in mutual trade with Moscow.

Russia has been boosting its use of alternative currencies in transactions since last year. President Vladimir Putin has suggested that the Chinese 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.

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