The de-dollarization trend is also intensifying in Asian countries. Bangladesh has decided to repay the cost of nuclear power plants that Russia is building in its country in yuan instead of dollars, and Pakistan will also use yuan to purchase Russian crude oil. Iraq allowed private sector revenues to be paid in yuan in February. Thailand has also decided to strengthen cooperation with the People’s Bank of China to expand yuan and baht settlements during trade between the two countries.
De-dollarization moving as fast as the wind to Asia
Thanks to this trend, China’s overseas trade yuan payments surged nearly 40% last year. According to Bloomberg News, yuan payments accounted for 48% of China’s external transactions in March, overtaking dollar payments (47%) for the first time in history. According to Bloomberg, the yuan’s share of all global trade and financial transactions jumped from 2.5% in 2017 to 4.5% in March.
Of course, despite the advance of the yuan, most predict that the dollar’s status as a key currency will not be shaken for some time in the future. Currently, 88% of international foreign exchange market transactions are made in dollars. In order to become a key currency, strong military and economic power must be supported, and transparent and reliable capital markets are also essential. The yuan’s intervention in the foreign exchange market and capital control are obstacles. Financial markets and finances are also not transparent.
However, the dollar’s share of reserve currencies around the world is rapidly decreasing. The proportion of dollars, which was 66% in 2015, fell to 58% in the fourth quarter of last year. Amid rapid U.S. interest rate hikes and inflation, the U.S. confidence in the U.S. Federal Reserve (Fed), repeated U.S. debt ceiling hikes, and growing geopolitical risks and nationalism due to confrontations between the U.S. and China.
Adrin Zürher, head of investment management in the Asia-Pacific region at investment bank UBS, told Bloomberg that China is sending a strong signal that “there is a world other than the U.S. and the West, and we don’t need the U.S. or U.S. dollars.” Bloomberg said such a message from China is resonating in some parts of the world.
