China’s legal tender might soon put an end to the greenback’s global dominance. Over the past 10 years, the yuan has achieved a major breakthrough and has taken a dominant position in the market. In 2022, the renminbi's share of trade finance has more than doubled.
According to the Financial Times, citing trade financing data from SWIFT, a worldwide interbank financial platform, the yuan’s share by value of the market rose to 4.5% from 2%, which brings the currency closer to its rival, the euro, which accounts for 6% of the market.
The renminbi's share of trade finance has more than doubled mostly because of China’s close trade ties with Russia and partially due to rising costs of dollar financing triggered by the US Federal Reserve’s tightening cycle. Thanks to Cips, China’s alternative to SWIFT, bilateral trade with Russia surged to a record $185 billion. Analysts say the success of the Chinese currency is a boon for Beijing as it seeks renminbi internationalization as well as a serious challenge for Western countries, which have used sanctions to bar Russia from utilizing SWIFT.
“The dollar has evolved from a dominant payment, settlement, and investment vehicle into a tool of political blackmail and coercion. By weaponizing its dollar hegemony, the US can not only arbitrarily impose unilateral sanctions on other countries, but can also harvest global wealth and export its own risks to the rest of the world through irresponsible monetary policies,” Chinese Global Times said earlier.
