NEW DELHI: China is intensifying its efforts to reduce its reliance on the US dollar in international trade and finance, a move aimed at shielding itself from potential sanctions similar to those imposed on Russia. This strategy, known as de-dollarization, involves increasing the use of the Chinese yuan (CNY) in global transactions and boosting its status as a reserve currency.
The geopolitical tensions between China and the US, coupled with the sanctions levied on Russia following its invasion of Ukraine, have underscored the risks associated with the dollar-dominated financial system.Beijing is now more determined to mitigate these risks by promoting the yuan as a stable alternative.
A report by Business Insider highlights several key developments in China’s de-dollarization efforts. Notably, China has struck deals with several countries to settle trade in yuan rather than dollars. This includes agreements with Russia, which has become increasingly reliant on the yuan due to Western sanctions. According to the report, “Russia has increasingly turned to the yuan for transactions as sanctions have cut it off from the dollar-based system.”
China is also encouraging its domestic companies to invoice in yuan for international trade and pushing for the inclusion of the yuan in the currency reserves of other countries. The Chinese government has been actively promoting the Belt and Road Initiative, which has led to numerous infrastructure projects across Asia, Africa, and Europe being financed in yuan.
In the financial sector, China has been expanding the availability of yuan-denominated assets and improving the infrastructure for cross-border yuan payments. The establishment of the Cross-Border Interbank Payment System (CIPS) is a significant step in this direction, offering an alternative to the SWIFT network, which is predominantly used for international dollar transactions.
Despite these efforts, the dollar remains the dominant global currency, accounting for a significant portion of international trade and central bank reserves. However, analysts believe that China’s persistent push for de-dollarization could gradually shift the balance. As the report notes, “While the yuan’s share in global payments is still relatively small compared to the dollar, it has been steadily growing.”
China’s de-dollarization drive is part of a broader strategy to assert its economic independence and strengthen its geopolitical influence. By reducing its dependence on the dollar, China aims to protect its economy from external shocks and enhance its role in the global financial system.
The geopolitical tensions between China and the US, coupled with the sanctions levied on Russia following its invasion of Ukraine, have underscored the risks associated with the dollar-dominated financial system.Beijing is now more determined to mitigate these risks by promoting the yuan as a stable alternative.
A report by Business Insider highlights several key developments in China’s de-dollarization efforts. Notably, China has struck deals with several countries to settle trade in yuan rather than dollars. This includes agreements with Russia, which has become increasingly reliant on the yuan due to Western sanctions. According to the report, “Russia has increasingly turned to the yuan for transactions as sanctions have cut it off from the dollar-based system.”
China is also encouraging its domestic companies to invoice in yuan for international trade and pushing for the inclusion of the yuan in the currency reserves of other countries. The Chinese government has been actively promoting the Belt and Road Initiative, which has led to numerous infrastructure projects across Asia, Africa, and Europe being financed in yuan.
In the financial sector, China has been expanding the availability of yuan-denominated assets and improving the infrastructure for cross-border yuan payments. The establishment of the Cross-Border Interbank Payment System (CIPS) is a significant step in this direction, offering an alternative to the SWIFT network, which is predominantly used for international dollar transactions.
Despite these efforts, the dollar remains the dominant global currency, accounting for a significant portion of international trade and central bank reserves. However, analysts believe that China’s persistent push for de-dollarization could gradually shift the balance. As the report notes, “While the yuan’s share in global payments is still relatively small compared to the dollar, it has been steadily growing.”
China’s de-dollarization drive is part of a broader strategy to assert its economic independence and strengthen its geopolitical influence. By reducing its dependence on the dollar, China aims to protect its economy from external shocks and enhance its role in the global financial system.
