YUAN REPLACES DOLLAR AS MOST-USED CURRENCY IN CHINA’S FOREIGN TRADE
China’s yuan, not the dollar, was the most-used currency in China’s international trade at the end of March, Business Insider reported.
The yuan was used in 48.4 percent of transactions, the dollar in 46.7 percent, Reuters calculated from data supplied by China’s State Administration of Foreign Exchange.
The yuan’s surge is a result of China’s campaign to make its currency, also known as the renminbi, a rival to the dollar in cross-border trade.
China saw the opportunity to promote its currency after Western allies, rallied by the U.S., imposed trade sanctions on Russia to punish it for invading Ukraine.
More nations began leaning away from the dollar as a standard of value when they saw Russia’s dollar-based assets frozen as part of the sanctions campaign. They worried that their assets could be frozen if their policies or actions fall afoul of U.S. interests, analysts said.
The dollar’s place as the world’s reserve currency could shrink as the U.S. uses financial sanctions to pursue its geopolitical goals, treasury secretary Janet Yellen admitted in a recent interview, RT noted.
Russia now uses yuan more than dollars to trade across borders after the West excluded Russia from SWIFT, the international digital clearinghouse for trade payments.
However, the yuan or renminbi was the currency of choice in just 4.5 percent of the world’s trade deals in March, while the dollar was the medium of exchange in 83.7 percent, Reuters said.
China’s strict control over its yuan, including market manipulation to adjust its value, will restrict the currency’s wider acceptance, at least in the short term, analysts have said.
TRENDPOST: A growing number of countries are now trading directly with China, accepting yuan and paying China in their own currencies without first converting to dollars as a standard of value, as we reported in “Spotlight: Bye Bye Bucks – Death of the Dollar” (18 April 2023).
CENTRAL BANKS SWAP DOLLARS FOR GOLD AS SAFE HAVEN
Increasingly, the world’s central banks are shifting from dollars to gold as the best venue for storing their reserves, according to Ruchir Sharma, president of Rockefeller Capital Management International.
Gold’s price has jumped 20 percent in the past six months, he noted, saying demand is not driven by “the usual suspects” seeking shelter from inflation and returns above interest rates.
Instead, “heavy buyers” such as central banks are scooping up the precious metal, Sharma wrote in a recent Financial Times essay.
Central banks have made up fully one-third of recent demand for gold, a record pace since at least the 1950s, he said.
“This buying boom has helped push the price of gold to near-record levels, more than 50 percent higher than what models based on real interest rates would suggest,” he added.
China, India, and Russia are among the top ten central bank gold bugs, he noted. The other seven are in developing nations.
“Not coincidentally, these three countries are in talks with Brazil and South Africa about creating a new currency to challenge the dollar,” Sharma wrote.
“The oldest and most traditional of assets—gold—is now a vehicle of central bank revolt against the dollar.”
Thailand and the Philippines also are seeking alternatives to the buck.
The revolt has been prompted by Western sanctions against Russia after it invaded Ukraine.
“Suddenly, it was clear that any nation could be a target,” Sharma pointed out.
ARGENTINA SWITCHES FROM DOLLAR TO YUAN, TAPS CHINA SWAP LINES AMID PESO CRISIS
Argentina joins Brazil, Malaysia, and a growing list of countries that will now accept, and pay with, yuan in its trade with China, Argentina’s economics ministry announced on 26 April, according to Russian news service RT.
Russia also now accepts yuan as well as rubles in payment for its exports.
Argentina and China agreed last year to swap currencies directly as Argentina sought to slow the outflow of dollars from its foreign exchange reserves, RT said.
After Brazil, China is Argentina’s largest trading partner and the second-largest purchaser of Argentina’s exports.
Argentina imported about $13.5 billion in goods from China in 2021, according to United Nations data.
In 2022, the dollar’s share of world trade fell ten times faster than in the two previous decades, according to asset management firm Eurizon.
Argentina will pay $1 billion this month toward its trade bill with China and will pay $790 billion monthly hereafter, economy minister Sergio Massa said.
Under the agreement, individual companies also can pay in yuan for their Chinese imports.
Last month, the Central Bank of Argentina tapped its currency swap line with China as one of several emergency measures to counter a selloff in the peso after the country’s inflation ran at an annual rate above 100 percent.
The bank also added 10 percentage points to its key “Leliq” interest rate last week, bringing it to 91 percent, the highest in at least five years.
Visiting China in April, Brazil’s president Luis Ignacio Lula da Silva urged developing countries to ditch the dollar and trade directly in their own currencies, as we reported in “Brazil’s President Urges Developing Nations to Dump the Dollar” (18 Apr 2023).
TREND FORECAST: As we noted in our “Economic Overview” of 18 April, we have long forecast that when interest rates decline in the U.S., so too will the value of the dollar.
Although the yuan accounts for just 4.5 percent of trade, the currency game is changing. According to SWIFT, trading in the yuan was just 1.8 percent a year ago—and as the Financial Times reported last month, the Renminbi’s share of trade finance has doubled since the start of the Ukraine war.
As Gerald Celente has forecast, the 20th century was the American century and the 21st century will be the Chinese century. The stronger the Chinese economy grows, so too will it continue its ascent as the world’s largest trading partner.
As China dominates world trade, its yuan will dominate world trade and rival the dollar, if not supplant it, as a reserve currency.
While the dollar will not collapse as the world reserve currency overnight, its erosion has begun and, minus a wild card such as the end of the petro-dollar, will be slow and steady.