Russia’s invasion of Ukraine is accelerating the use of the yuan, China’s currency, even if it remains far behind the major role played by the dollar and other major Western currencies whose domination Beijing criticizes. Being under American and European sanctions, Russia is obtaining its goods – from smartphones to cars – mainly from China, while China continues to buy Russian hydrocarbons on a massive scale. Half of Russia’s oil exports go to the People’s Republic. According to Chinese customs, trade between the two neighbors reached around $240 billion in 2023, an increase of over 26% year-on-year.
As a consequence of the Western ban, Russia now uses the yuan almost exclusively in its exchanges with China. The result is that 53% of the country’s transactions with the outside world were conducted in yuan in July, compared with 40% for the same period in 2021, according to an announcement from the Chinese Foreign Exchange Administration at the end of the summer. This clear increase needs to be put into perspective, since a proportion of these exchanges are with Hong Kong, a territory under Chinese sovereignty which has a separate currency.
The subject of currencies and the dollar’s dominance is set to come up at the BRICS summit, taking place from Tuesday, October 22, to Thursday, October 24, in Kazan, Russia, where Russian and Chinese diplomats are expected to promote the use of national currencies and an overhaul of the international financial system. While China’s economy is the second largest on the planet and the country the leading exporter, its currency is only fourth in international payments (4.74%), according to the Swift interbank system, far behind the dollar (47.8%), the euro (22.5%) and the British pound.
American sanctions against Russia, following those against Iran – whose oil exports also go mainly to China – remind Beijing of America’s monetary power. This has prompted it to look for ways of circumventing this power. All the more so as President Xi Jinping is seeking to make his country more “resilient” to Western levers of pressure, for example, in case the military option should be chosen in an attempt to take control of Taiwan.
‘Dilemma’
Finding ways around the dollar’s dominance has become a central theme in China-Russia meetings and those between non-allied powers in Washington. “The RMB [the renminbi, another name for the yuan] has been gaining market share since the second half of 2022 and particularly in 2023 as it proved the best way to escape sanctions by G7 countries following the Russian invasion of Ukraine. China is going to push the RMB even further at the BRICS summit,” noted Alicia Garcia-Herrero, Natixis Bank’s Chief Economist for the Asia-Pacific region.
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