China is quietly trying to lose the dollar, but it may fail

By RockedBuzz 2 Min Read

China’s yuan currency is becoming more widely accepted in international payments, and analysts say it could lay the foundations for a trade system that runs parallel to the dominant US dollar. More recently, for the first time in March, more cross-border transactions with China were conducted in yuan than in dollars, and Argentina announced that it intends to pay for Chinese goods in yuan instead of dollars, reported the Reuters.

As the dollar dominates global trade settlements, bilateral agreements mandating yuan payments with China continue to be signed, from the Chinese to oil purchases in the Middle East to trade with partners from Brazil to Russia.

Cooperation between China, Russia and Brazil to use the renminbi for cross-border payments could eventually attract other countries to Chinese payments, and analysts say cumulatively, the renminbi could appreciate at the expense of the dollar.

A true global introduction of the yuan is unlikely, given that Beijing is expected to maintain a tight grip on the currency.

However, the development of the new trade architecture is already gradually progressing and gaining momentum, especially as Russia’s exclusion from most Western payment systems has accelerated the development of alternatives.

China has long sought to increase the yuan’s share of global payments, but it appears unwilling to open its capital accounts and allow the dollar, euro, and yen to flow freely, making the dollar, euro, and yen so makes it comfortable. Although the yuan will not replace the US dollar globally, China is already beginning to replace the dollar in some of its trade relationships.

World trade is dominated by the dollar, euro, pound sterling, and yen because these currencies are freely accessible and linked to open economies in a way that the capital-controlled yuan is not.

Cover image: Getty Images/ByoungJoo.

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