The Start Of De-Dollarization: China’s Move Away From The USD

Recent findings from the Hinrich Foundation indicate that China’s shift away from the USD signifies the commencement of de-dollarization. Furthermore, data reveals that the percentage of settlements conducted in RMB has now exceeded those in USD.

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Like many other nations, China has settled the majority of its cross-border payments in US dollars (USD) since 2010. It isn’t the case anymore as of the first quarter of 2023.

The Chinese renminbi (RMB) is becoming more and more popular as a means of payment both domestically and internationally, as Visual Capitalist’s Julian Wendling illustrates in the graph below, sourced from the Hinrich Foundation.

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The De-Dollarization of China’s Cross-Border Transactions

Bloomberg data on China’s share of payments and receipts in RMB, USD, and other currencies from 2010 to 2024 is used in this research.

Less than 1.0% of China’s cross-border payments in the first few months of 2010 were settled in local currency, while over 83.0% were in USD.

China has since reduced the difference. For the first time, the RMB’s percentage of Chinese settlements surpassed that of the USD in March 2023.

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The de-dollarization of Chinese international settlements has persisted ever since.

More than half (52.9%) of Chinese payments were settled in RMB as of March 2024, whereas 42.8% were settled in USD. This is twice as much as it was five years ago. As to Goldman Sachs, the de-dollarization of China’s currency was mostly influenced by foreigners’ greater inclination to exchange assets valued in RMB. Additionally, Brazil and Argentina said at the beginning of the year that they would accept RMB for trade settlements.

Most Popular Currencies in Foreign Exchange (FX) Transactions

The USD continued to be the most often utilized currency for FX settlements globally in 2022, according to data from the Bank for International Settlements. The Japanese yen and the euro placed second and third, respectively.

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Even though it only makes up a small portion of foreign exchange transactions, the Chinese yuan has appreciated the most in the past ten years. In the meantime, fewer people were using the yen and the euro.

The Future of De-Dollarization

If the RMB’s global ascent continues, the USD’s hold on global trade may eventually loosen.

Although the effects of the dollar’s decline are complicated and unpredictable, they might include everything from the underperformance of American financial assets to the weakening of Western sanctions.

Nonetheless, it is unlikely that the global economy will fully shift away from the dollar in the near or medium term, even though the use of RMB in international payments may increase. The nation’s stuttering economic growth and China’s tight capital restrictions, which restrict the amount of RMB available outside the country, are major factors in this.

Last year, GreatGameIndia reported that Professor and economist Richard Wolff said BRICS expansion goes hand in hand with de-dollarization and the decline of the ‘US empire’.

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