China has also increasingly promoted the global usage of the yuan and expanded foreign investors’ access to its commodity exchanges in order to erode the dominance of the US dollar in global trade agreements.
The US dollar is nowhere close to being dethroned as the dominant reserve currency and standard for global trade. But a series of recent moves by China signal that countries around the world are newly open to exchanging goods for yuan, rather than US dollars.
Cementing yuan-based trade relations with additional countries furthers China’s goal to diversify its sources of agricultural imports away from the US, an important part of China’s push for increased food security.
China also has increasingly promoted global usage of the yuan, also known as renminbi, in an effort to make it one of the world’s reserve currencies, potentially even challenging the US dollar. In line with this, China has expanded foreign investors’ access to its commodity exchanges, including trading of yuan-denominated contracts for a host of agricultural commodities.
Among recent developments, Argentina agreed to start paying for imports from China in yuan, rather than dollars, which has historically been the currency of trade. Brazil has made similar arrangements with China, and Egypt has said it is considering approving trade in the currency of a number of its trade partners including China and Russia.
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Beijing also recently signed a deal to pay for liquified natural gas (LNG) from the United Arab Emirates in yuan, a small step in Chinese President Xi’s pursuit to end the era of the “petrodollar.”
Among factors underlying various countries’ willingness to forsake the dollar in global transactions is the strengthening of the currency following US interest rate hikes, which has bloated dollar-denominated foreign debt and worsened trade balances for many countries. Taken together, these factors have led to a number of countries facing a scarcity of dollars.
While the US currency’s dominance has been challenged before during times of high relative value for the dollar and geopolitical uncertainty, China appears to be making some strides in taking advantage of the current situation.
Treasury Secretary Janet Yellen warned in a quote to CNN that the US dollar may lose its dominance if nations are sanctioned.