The Chinese yuan has overtaken the US dollar as the most-used currency for cross-border settlements according to official data from the State Administration of Foreign Exchange. The push to internationalise China’s currency for payments led to the yuan accounting for 48.4% of all settlements in March, with $549.9bn in payments settled using the yuan, up from $434.5bn in February. Payments using the US dollar fell from 48.6% to 46.7%. Despite the increase, the yuan only accounted for 4.5% of all global international payments in March, compared to 83.71% of all volume settled in US dollars.
China has been increasing its reliance on its currency to challenge US dominance in international trade. The country has been nervous about the use of US sanctions as a way of punishing countries such as Russia, which has led Beijing to look for alternatives, and it has also signed bilateral trade agreements with countries including Russia and Brazil. However, analysts suggest that the International Monetary Fund’s Special Drawing Rights, which also includes the euro, the Japanese yen, the British pound and the US dollar, will continue to dominate for the foreseeable future.
The shift in usage of the yuan has led some to predict the rise of a “bipolar” economic world. Nouriel Roubini, an economist, predicted that rivals of the US would group around the yuan and make it an alternative to the US dollar, while billionaire investor Ray Dalio described the importance of the US dollar in international trade as fading due to the sanctions the country has imposed on other countries.
Questions remain about the impact of China’s recent crypto crackdown on the adoption of the yuan. It remains to be seen whether the digital yuan, expected to be launched in time for the 2022 Winter Olympics, can successfully replace existing payment rails and bridge China’s domestic and international financial systems. The digital yuan could further increase China’s power in international payments and further cement the yuan’s place among the world’s top currencies.