By
Godfrey Benjamin
September 28th, 2023
Despite surpassing the USD in cross-border payments in China, the use of the yuan in global trade finance remains low.
The Chinese yuan has become the most used currency for cross-border transactions in China. In March, the yuan overtook the US dollar for the first time in cross-border transactions in the country. Notably, the Chinese government has constantly been pushing for the use of its currency in settling transboundary trades. The nation’s officials are making an effort to internationalize its use.
According to Reuters calculation based on data from the State Administration of Foreign Exchange, the use of yuan in cross-border payments and receipts surged to a record $549.9 billion last month. This is a jump from the $434.5 billion recorded in the month before. The report shows that 48.4% of all cross-border transactions were attributed to yuan while the dollar’s share slipped from $48.6% in the previous month to 46.7%.
The Chinese government has come a long way in promoting the use of yuan in cross-border transactions. In 2019, the currency had almost a 0% share in transborder payments and receipts. Now, the most populous country has reached a significant milestone in its bid to reduce its reliance on the US.
Chinese and Global Use of Yuan in Cross-Border Transactions
Despite surpassing the USD in cross-border payments in China, the use of the yuan in global trade finance remains low. Its share in the global transactions in March was just about 4.5%, while the dollar’s share was a whopping 83.7%. Notably, the yuan’s use in global trade finances has steadily increased, with China entering into non-dollar trade agreements with countries like Brazil. Also, the Chinese official currency has become the most traded in Russia, overtaking the USD. This is because Moscow has been alienated from global finance following its attack on Ukraine last year. According to Bloomberg data, the Chinese yuan topped the US dollar as the most traded cryptocurrency in February and March 2023. After the currency had a turnaround in February, the trend became more pronounced the following month. It maintained the winning streak as Moscow and Beijing deepened political and economic ties.
Before the implementation of the Western sanctions due to the Ukraine invasion by Russia, the yuan had minimal trade volume in the Russian Markets. However, the volume has been steadily increasing since March 2022.
Even as the Chinese yuan is making unprecedented waves, analysts believe the USD has a solid position globally. They said the US dollar will unlikely lose its dominance in global markets in the foreseeable future. The US currency has dominated global trade and has been the leading reserve currency since World War II.
As the dollar falls behind the Chinese yuan for the first time in Chinese cross-border transactions, fingers are crossed on how long the yuan will maintain its new position.