China's Yuan Trade Settlement Rate Surpasses Dollar for the First Time

Expansion of RMB Usage in China
Trade and Capital Transaction Settlement Ratio
49% in Q1... Surpassing the Dollar

For the first time ever, the proportion of yuan used in trade and capital transactions in China has surpassed the dollar settlement rate. Analysts suggest that as China accelerates the expansion of yuan settlements, it is creating cracks in the United States' dollar hegemony.

On the 25th, the Nihon Keizai Shimbun reported, citing statistics from the State Administration of Foreign Exchange of China, that in the first quarter of the 2023 fiscal year (April to June), the amount of yuan settled by Chinese companies and institutional investors was approximately $1.5104 trillion (about 1,939.6556 trillion KRW), an 11% increase compared to the same period last year.

In particular, the proportion of transactions using the yuan as a settlement currency reached 49%, surpassing the dollar settlement rate for the first time in history. In 2015, the proportion of China’s use of its own currency in trade and capital transactions was only about 30%, roughly half of the dollar settlement rate (about 60%). This ratio was calculated mainly based on the number of cases using the yuan in capital transactions such as stock and bond trading and overseas trade.

The Nihon Keizai Shimbun explained, "Although the United States has maintained its absolute position as the issuer of the global reserve currency, countries are increasingly showing movements to reduce their economic dependence on the U.S. Among them, China is trying to increase the use of the yuan in settlements with counterparties by leveraging its economic power."

The yuan’s influence is also growing in the global financial market. According to the Society for Worldwide Interbank Financial Telecommunication (SWIFT), as of last month, the yuan accounted for 2.77% of usage in international financial markets and trade. This figure is far behind the dollar, which recorded a 42.02% settlement rate. However, the growth rate of yuan settlements is higher compared to major currencies. The yuan settlement rate increased by 0.97 percentage points over five years from 1.81% in 2018, while during the same period, the euro and yen settlement rates decreased by 0.24 percentage points and 2.72 percentage points, respectively. The yuan is closely trailing the yen, which recorded a 3.36% settlement rate.

China’s government efforts to break away from dollar hegemony are believed to have led to the increase in yuan settlement rates. Last month, the Chinese government allowed direct yuan trading for 24 stocks on the Hong Kong stock exchange. This measure aims to reduce dollar dependence and elevate the status of the yuan. Until now, mainland Chinese investors had to settle in Hong Kong dollars when trading stocks on the Hong Kong stock exchange using yuan. Moreover, starting this year, China has signed direct yuan settlement agreements with Venezuela and Argentina following Brazil, fueling the de-dollarization movement in Latin American countries.

Externally, the Russia-Ukraine war has influenced the increase in yuan settlement rates. Due to Western sanctions, Russia, which had been exporting crude oil to Europe and the U.S., has been selling to China, increasing the use of the yuan. According to Daiwa Institute of Research, a Japanese private think tank, the average daily number of yuan settlement transactions on the Cross-Border Interbank Payment System (CIPS) in April was 21,000, 1.5 times higher than before the Ukraine invasion.

The yuan settlement rate is expected to rise further in the future. The Nihon Keizai Shimbun analyzed, "Emerging countries want to reduce their dependence on the U.S. dollar due to high exchange rates. Moreover, as the U.S. imposed sanctions on Russia using its dominant position of the dollar, some countries are judging that they could become a second Russia and thus feel the need to break away from dollar hegemony."

This content was produced with the assistance of AI translation services.