China's Yuan Rise... Surpasses Dollar in Foreign Settlements for the First Time (Comprehensive)

For the first time ever, the amount of trade settled in the Chinese yuan surpassed that of the US dollar in China's trade transactions. Amid changes in the international landscape such as the deterioration of relations between the US and Saudi Arabia, the Middle Eastern powerhouse, and the war in Ukraine, China's rise is emerging as a factor threatening the dollar's hegemony.

On the 26th (local time), major foreign media outlets cited data from the State Administration of Foreign Exchange of China, reporting that the scale of yuan used in China's international trade reached $549.9 billion (approximately 737 trillion won) last month, a nearly 27% increase compared to the previous month ($434.5 billion).

The share of yuan settlements in China's trade payments increased to 48.4% as of March, while the share of dollar settlements decreased to 46.8%. This is the first time the yuan has become the top currency for cross-border transactions within China.

Compared to 2010, when the yuan's share in settlements was virtually nonexistent, this represents remarkable growth. Bloomberg News evaluated this as another milestone in China's efforts to reduce dependence on the dollar.

China, which has long challenged dollar hegemony, has recently made its threat more visible. In his keynote speech at the first-ever China-Gulf Cooperation Council summit held in Riyadh, Saudi Arabia, last December, Chinese President Xi Jinping introduced cooperation initiatives to be prioritized over the next 3 to 5 years, requesting Middle Eastern oil-producing countries' leaders to settle oil transactions in yuan.

China precisely exploited the rift that began to form between its longtime allies, the US and Saudi Arabia. Last month, China implemented yuan loans for trade payment purposes at a Saudi state-owned bank for the first time.

The expansion of trade between Russia and China, following Western sanctions on Russia after its invasion of Ukraine in February last year, also contributed to the increased influence of the yuan. Russia, excluded from the dollar-centered international payment network SWIFT and unable to conduct dollar transactions, is increasing its use of the yuan.

[Image source=Reuters Yonhap News]

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The number of yuan settlement countries is also increasing, centered on allies such as Brazil and Argentina. Recently, following a summit, China and Brazil agreed to expand transactions using the yuan and the Brazilian real. This method uses the China-created "Cross-Border Interbank Payment System (CIPS)" instead of SWIFT for trade transactions.

Argentina also decided to pay for goods imported from China in yuan rather than dollars starting next month. On this day, the Argentine government stated, "We will settle about $1 billion worth of Chinese imports this month in yuan instead of dollars," adding, "From next month, approximately $790 million worth of yuan settlements will be made monthly."

However, the prevailing view is that the yuan is insufficient to shake the dollar's hegemony. The global economy is still led by the US and its allies, and the only country capable of supplying sufficient currency liquidity remains the US. As of last month, the share of the dollar used in the SWIFT payment network exceeded 40%, while the yuan remained at 2%.

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