In a significant shift in global financial dynamics, China and Russia have almost eliminated the use of the US dollar in their bilateral trade, signaling a growing trend towards de-dollarization. Russian Prime Minister Mikhail Mishustin revealed that over 90% of trade between the two countries is now conducted in their respective national currencies, the ruble and the yuan.
This move towards de-dollarization has been especially pronounced as Russia turns towards China amidst Western sanctions. These sanctions, imposed in response to Russia’s invasion of Ukraine in 2022, have pushed Russia’s economy to rely more heavily on China for trade. As a result, trade between Russia and China has burgeoned to an unprecedented $200 billion this year, according to Mishustin’s statements reported by TASS, Russia’s state-run news agency.
In contrast, trade between Russia and the United States has plummeted to its lowest point in three decades, reflecting the estrangement between Moscow and the Western financial systems. This decline in US-Russia trade further underscores the shift in global trade patterns and alliances.
Meanwhile, China has been making strides in the internationalization of its currency, the yuan. The yuan’s global payment share has seen a significant increase, rising from 1.9% in January to 3.6% in October. Furthermore, the People’s Bank of China has actively engaged in bilateral currency swaps with over 30 central banks, including influential financial players like Saudi Arabia and Argentina.
This trend towards de-dollarization is not limited to Russia and China. Other BRICS nations (Brazil, Russia, India, China, and South Africa) are also increasingly looking to reduce their reliance on the US dollar. Some analysts have speculated that this bloc might introduce its own currency as an alternative to the greenback, though these fears are considered exaggerated by most experts. Top officials from BRICS nations, including India, have clarified that there is currently no plan for a BRICS currency.
While the move away from the dollar is significant, the US currency’s dominant position in the global financial markets remains unshaken for now. The dollar accounts for a substantial 54% of central bank exchange reserves and a staggering 88% of global trade transactions in 2022.
In essence, while the trend towards de-dollarization by key global players like China and Russia is notable, it’s clear that the US dollar still reigns supreme in the global financial system. However, these developments signal a changing landscape in international trade and finance, where the dominance of the dollar could be increasingly contested in the years to come.