Although the dollar has been overtaken in cross-border payments in China, the use of the yuan in financing global trade remains low.
The Chinese Yuan has become the most used currency for cross-border transactions in China. In March, the yuan surpassed the US dollar for the first time in cross-border transactions in the country. Notably, the Chinese government has been continually pushing for its currency to be used to settle cross-border deals. Officials in the country are making an effort to internationalize its use.
according to Reuters account Based on data from the State Administration of Foreign Exchange, the use of the yuan for cross-border payments and receipts rose to a record high of $549.9 billion last month. This is a jump from the $434.5 billion recorded in the previous month. The report shows that 48.4% of all cross-border transactions were attributed to the yuan, while the dollar’s share fell from 48.6% in the previous month to 46.7%.
The Chinese government has come a long way in promoting the use of the yuan in cross-border transactions. In 2019, the currency was approx 0% share in cross-border payments and receipts. Now, the most populous country has reached an important milestone in its attempt to reduce its dependence on the United States.
Chinese and global use of the yuan in cross-border transactions
Although the dollar has been overtaken in cross-border payments in China, the use of the yuan in financing global trade remains low. Its share in global transactions in March was only about 4.5%, while the dollar’s share rose by a whopping 83.7%. Notably, the use of the yuan in financing global trade has increased steadily, with China entering into non-dollar trade agreements with countries such as Brazil. Also, the Chinese official currency has become the most traded in Russia, overtaking the US dollar. This is due to Moscow’s isolation from global finance in the wake of its attack on Ukraine last year. according to Bloomberg data, the Chinese Yuan topped the US dollar as the most traded cryptocurrency in February and March 2023. After the currency saw a turnaround in February, the trend became more pronounced the following month. And it maintained its winning streak while deepening political and economic ties between Moscow and Beijing.
Before the implementation of Western sanctions due to the invasion of Ukraine by Russia, the yuan had little trading volume in the Russian markets. However, the volume has been steadily increasing since March 2022.
Even as the Chinese Yuan is making unprecedented waves, analysts believe that the US dollar is enjoying a strong position globally. They said that the US dollar is not likely to lose its dominance in the global markets in the foreseeable future. The US currency has dominated global trade and has been the leading reserve currency since World War II.
As the dollar retreats from the Chinese yuan for the first time in cross-border Chinese transactions, it is ignored how long the yuan will hold its new position.
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Ibukun is a crypto/financial writer interested in passing on relevant information, using uncomplicated words to reach all types of audiences. Apart from writing, she loves watching movies, cooking, and exploring restaurants in the city of Lagos where she is staying.
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