China is looking to globalise yuan against a weaponised dollar

China has for long been extending a calculated diplomatic push to globalise the use of its currency.
The use of the yuan, or renminbi, in contracts for everything from oil to nickel is gathering speed, with the currency’s share of global trade finance tripling since the end of 2019.
That’s still a tiny portion of global transactions, and the currency remains tightly controlled by Chinese authorities.
Now China passed another milestone in its bid to reduce reliance on the dollar, as renminbi usage in its cross-border transactions jumped ahead of the greenback for the first time in March.
The local currency’s share of China’s cross-border payments and receipts rose to a record high 48% at the end of April from nearly zero in 2010, according to research by Bloomberg Intelligence citing data from the State Administration of Foreign Exchange.
The dollar’s share declined to 47% from 83% over the same period.
China is putting the yuan front and centre in its fight back against the US’s unique influence over global money.
President Xi Jinping’s government has been busy striking deals over the past year to expand the ways in which the currency is used, with new agreements linked to the renminbi stretching from Russia and Saudi Arabia to Brazil and even France.
While the US remains the world’s clear financial hegemon, these moves are helping China to carve out a bigger place for itself in the international financial system.
They come at a time when geopolitical strains are growing and global commerce is becoming an ever-more-active battleground.
Antagonism has flared between the US and China over issues ranging from trade and Taiwan to TikTok and technological know-how.
Hard-hitting sanctions on Russia have revealed a new willingness by the US to weaponise the dollar.
Together, that’s done more to promote the yuan over the past year than China achieved in the preceding decade.
Sanctions that ensnared Moscow following its invasion of Ukraine have added to that pace. The yuan’s usage in Russian export payments surged 32-fold last year alone.
Locked out of the central international payments system known as SWIFT, Russia embraced the yuan for trade, private savings and foreign-exchange transactions.
China has developed its own international-payments platform — CIPS — that’s entirely separate from SWIFT, which has been embraced not only by institutions in Russia, but also by banks that operate in places like Brazil.
Still, the lack of deep, free markets is a hindrance if China really wants to take on the dollar or euro as the global currency of choice.
Even with the drumbeat of international deals, the yuan is not fully convertible. There are restrictions on its use in areas such as cross-border loans and portfolio investments.
The renminbi is only the fifth-most popular currency for cross-border payments. Excluding payments between countries that share the euro, China’s currency accounted for 1.7% of cross-border payments at the end of March, compared to around 50% for the dollar and 22% for Europe’s common currency, according to data from SWIFT.
For sure, the greenback has an overarching and enduring sway over the financial world with the central role US banks and currency play in the global economy.
But investors say the dollar is on the way down because the bulk of Federal Reserve rate increases is over, and virtually every other currency will strengthen as their central banks keep tightening.
Despite warnings about long-term headwinds, here’s the undeniable reality: Dollar is the king, still.
The US currency is on one side of almost 90% of foreign-exchange transactions and accounts for two-thirds of international debt.
Virtually all international trades in oil are priced in dollars.
Realistically, China’s ambition to globalise the yuan may not lead to a dollar collapse. It will, however, be a long, slow process that builds on a dollar decline.