China’s yuan settlement surpassed the dollar for the first time in its history in trade and capital transactions in the second quarter of this year.
Based on data from China’s National Bureau of Foreign Exchange, Nikkei compiled settlement currencies of companies and institutional investors in bilateral payments with China as its trading partner. As a result, yuan payments rose 11% year-on-year to USD 1.5104 trillion, and dollar payments fell 14% to USD 1.3997 trillion during the same period.
“China’s foreign settlement in Q2, yuan overtakes dollar for first time”
During this period, the proportion of yuan payments was 49%. This is the proportion of payments in which the yuan exceeded the U.S. dollar (45.4%) for the first time in the quarter.
Nikkei explained that the expansion of yuan payments has two factors: China’s opening of the capital market and “de-dollarization” in trade settlements. The Chinese government has limited foreigners’ yuan financial transactions on the mainland, but has allowed them to trade yuan-denominated stocks and bonds through Hong Kong.
In trade finance, it is analyzed that the expansion of yuan transactions with Russia has affected it. Russia has been using the yuan in crude oil transactions with China since its invasion of Ukraine last year, when Western financial sanctions ruled it out of its dollar and euro settlement networks. According to the Russian central bank, the proportion of yuan transactions in foreign exchange transactions rose to an all-time high of 39% in March.
The Chinese government is focusing its efforts on internationalizing the yuan by signing bilateral agreements with countries seeking de-dollarization. In March, China agreed with Brazil to exchange yuan and real currency without passing dollars in bilateral trade, including trade and investment. Argentina also announced in April that it would convert payments for Chinese imports from dollars to yuan instead.
However, the proportion of yuan payments in international trade is still low. According to the International Interbank Telecommunications Association (SWIFT), the world’s interbank network, the dollar topped the list with 42.02% of global payments as of June this year, while the yuan ranked fifth after the euro, sterling and Japanese yen with 2.77%.
