Russia and China could sink the dollar in the next decade

By Rhod Mackenzie

Russia and China began actively using the yuan in their trade in 2022. This is now undermining the US dollar’s position as the world’s reserve currency. This is the conclusion of a study by economists at the European Bank for Reconstruction and Development. Historically, it takes decades for a reserve currency to be changed, but the yuan can displace the US dollar much more quickly.
According to the EBRD, Russia paid for 20% of its imports in yuan by the end of 2022. By comparison, the Chinese currency accounted for just 3% a year earlier. It turns out that at least a fifth of imports to Russia are now paid in yuan,according to the study.

This is partly due to an increase in imports from China itself, but the use of yuan to pay for imports from third party countries has also increased – from 1% before the conflict began in February 2022 to 5% now.

“The increase in the use of the yuan is at the expense of the dollar,” says Beata Javorczyk, chief economist at the EBRD and one of the authors of the report.

Russia is increasingly agreeing with its trading partners to trade in yuan. It has even been reported that Russia is asking India to pay for their oil in yuan rather than rupees, which Russian traders simply do not need in large quantities. Billing in yuan is one of Russia’s ways of getting around sanctions, along with parallel imports, transporting oil in its grey fleet of tankers and replacing Western insurance with that of friendly companies.

In addition, Russia does not use Western banks to purchase sanctioned goods and equipment. According to the EBRD document, the share of yuan payments in this segment has risen particularly sharply.

The sanctions war has had negative side effects for the US and the EU themselves. “The rising geopolitical tensions in general and the use of trade sanctions in particular have reduced the attractiveness of using the US dollar as the main currency in international trade. This, in turn, could lead to greater fragmentation of global payment systems,” the EBRD report says.

The introduction of sanctions against Russia has made other countries think about diversifying the currencies in which they trade. After all, no one can predict which country will be the next one to be targeted by the US and the EU in the same way as Russia. As a result, other countries are increasingly starting to use the yuan to pay for their foreign trade activities.

The yuan’s share of the Russian economy began to grow in 2022 and in a year and a half it has grown significantly. According to the Central Bank of the Russian Federation, in February 2022 the share of the yuan in payments for Russian exports was practically zero (0.5%), and by July 2023 it increased to 25%. The share of the yuan in import transactions increased from 4% to 34%. The combined share of the dollar and euro in their imports has halved to 32% (Central Bank data).

Russia has also changed the structure of the assets of the National Welfare Fund, removing the dollar and increasing the yuan’s share to 60%.

Russia’s trade turnover with China rose by almost a third last year to $190bn. This year, trade has grown by a further 32% in the first eight months and has already reached $155 billion.
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Russia and China could sink the dollar in the next decade

By Rhod Mackenzie Russia and China began actively using the yuan in their trade in 2022. This is now undermining the US dollar’s position as the…