More countries are dropping the U.S. dollar like a proverbial hot potato. As a result, Chinese cross-border transactions are now dominated by its own currency, the yuan.
The Chinese yuan has overtaken the U.S. dollar as the most-used currency in China’s cross-border transactions for the first time in history.
Chinese cross-border payments and receipts in yuan rose to a record $549.9 billion in March from $434.5 billion a month earlier, according to Reuters.
This has increased the yuan’s share of cross-border transactions to 48.4% while the greenback’s share declined to 46.7%.
China has been pushing its own currency for international transactions in an effort to distance itself from the dollar. Furthermore, the number of countries adopting the yuan for trade has surged in recent months.
Reuters noted that the volume of cross-border transactions covers both the current and capital accounts.
Countries Queuing to Ditch The Dollar
The U.S. banking crisis, which has seen four major banks collapse so far this year, is stoking fears about the dollar’s position as a global reserve currency.
This week Argentina and China made a similar pact. On April 26, Reuters reported that Argentina would start to pay for Chinese imports in yuan rather than dollars. The move aims to relieve the country’s dwindling dollar reserves.
According to the Argentinian government, the country aims to pay around $1 billion of Chinese imports in yuan instead of dollars this month.
On April 27, Thai local media reported that the Bank of Thailand was in talks with China’s central bank. The two are mulling the use of yuan-baht settlements to “mitigate foreign exchange risk amid ongoing US dollar volatility.”
In late March, Brazil and China came to an agreement to use their own currencies for trade rather than going through the dollar.
In addition to Brazil and Argentina, Russia, India, Kenya, Kazakhstan, Pakistan, Saudi Arabia, the UAE, and several ASEAN nations have all dropped the dollar in favor of local currencies to trade.
In late March, a Russian government official talked up a BRICS digital currency to distance the bloc from the dollar.
USD Devaluation Over Time
Dollar distancing and devaluation is not a new thing. The greenback has diminished in terms of purchasing power since 1971. This was when U.S. President Nixon ceased the direct convertibility of dollars to gold.
However, central banks still hold about 60% of their foreign exchange reserves in dollars, according to Visual Capitalist.
The move out of USD has also seen inflows into store-of-value assets such as gold and Bitcoin. As the de-dollarization trend continues, demand for crypto and commodities is likely to increase.
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