The attempts of the transatlantic states to drive Russia into ruin with so far singular sanctions have given new urgency to the efforts beyond the West to break the global dominance of the US dollar. Russia is forced to develop alternatives for its foreign trade due to the fact that it has been cut off with the sanctions, among other things, Western currencies and the international payment system SWIFT. It now uses several currencies. The changeover is anything but trouble-free. In the middle of last year, for example, there were difficulties in trade with India: Because the country buys much more Russian oil than it delivers its own goods to Russia, Moscow remained on large quantities of rupees that can hardly be used outside India. However, India locks itself for political reasons against payment in Chinese yuan. 1] The Chinese yuan, on the other hand, was already used in September for 75 percent of Russian trade in China and for a good 25 percent of Russian trade with other states. 2] It is also quickly gaining in importance; its share in the settlement of international trade as a whole increased from only 1.9 percent in January 2023 to 3.6 percent in October 2023. 3]
The work on alternatives to the US dollar is being driven not least by the BRICS. They have already officially decided last year to force payment in national currencies in their trade among themselves. In addition, they are preparing the introduction of their own payment system, which, according to Russian presidential adviser Yuri Ushakov, is based on blockchain technologies and should help strengthen the importance of the BRICS in the global financial system. 4] For some time now, there has been speculation that Saudi Arabia, the 1st January officially joined the BRICS [5], could switch from the US dollar to the yuan in trade with its most important oil customer China; this would be a real danger for the petrodollar. In November 2023, Beijing and Riyadh agreed on a currency swap that could allow an entry into such an exchange. 6] For other aspects, however, there is no solution in sight so far. Since the Western states have frozen foreign assets of the Russian Central Bank worth around 300 billion US dollars and are now even thinking about confiscating them partially or even completely [7], there is a growing aversion to depositing assets in the West, especially in the countries of the global South. However, an investment in China, because the yuan is not freely convertible, is hardly considered an option so far.
As a detailed current study by the Berlin Foundation for Science and Politics (SWP) states, China is shying away from the transition to a free convertibility of the yuan. However, according to the SWP investigation, it has been "strenning extensive efforts for a greater internationalization of its own currency for some time." 8] While it strives domestically for "the development of efficient financial and capital markets" as well as "their opening to foreign investors and investors", the yuan should be "more and more used" abroad in the future. "Milestones on this long march" are "the establishment of a convertible offshore RMB" - Renminbi (RMB) is the official name of the Chinese currency, Yuan its central unit such as the US dollar in the USA -, the conclusion of currency swap agreements such as those with Saudi Arabia or "the gradual flexibility of the exchange rate regime".
According to the SWP, the yuan "has the potential to develop into a weighty international currency in the long term." This is not least due to the fact that "especially the developing and emerging countries of the global South" are "vulnerable" in the current world currency system dominated by the US dollar. 9] In fact, they would have to regularly take on "adjustment burdens for a US monetary and fiscal policy" that is based exclusively on US interests. At the same time, they are severely underrepresented in the Bretton Woods institutions and can therefore "only have a limited influence there." Above all, however, "the use of the dollar (and the euro, yen and pound) for financial sanctions against Russia ... has further intensified the displeasure with the dollar hegemony and the Western-dominated world currency system." This offers China the opportunity to recommend the yuan "as an alternative 'emerging market currency', in a sense as a counterweight to the dollar".
The SWP attaches particular importance to the fact that the People's Republic is a "pioneer" in the development and introduction of digital central bank money. As the think tank reports, China initiated its first concrete attempts with a digital currency as early as 2014. As early as 2016, Beijing announced that it wanted to introduce "digital central bank money for electronic payments." Extensive pilot projects with the e-CNY, the electronic yuan, began in 2020 in four major cities, including the high-tech metropolis of Shenzhen. 10] In the future, the SWP judges, "the technology and infrastructure developed in China" as well as "the standards of cross-border payment transactions with blockchain and in real time" could cost-effectively replace the currently dominant "international banking and clearing system". If this is achieved, then not least "the vulnerability of the country to Western financial sanctions would decrease and the People's Republic would be able to build effective power potentials against third countries," the SWP predicts.
The SWP advises that Berlin should not stand idly by and watch the development, but rather "give the internationalization of the euro a higher political priority" and set the course "at European level": "The lead of the People's Republic" in the introduction of digital central bank money should be an "incentive" to "strengthen efforts to develop a digital euro." 11] Otherwise, Berlin and the EU could fall behind. Bundesbank President Joachim Nagel announced at the weekend that he firmly assumes that we will have the digital euro in four to five years. 12] Whether this is enough to keep up with the high pace of economic development in China may be doubted.
[1] Elena Fabrichnaya, Nidhi Verma, Dmitry Zhdannikov: Currency clashes sour Russia's oil trade with Asia. reuters.com 27.11.2023.
[2] George Glover: Russia is using China's yuan to settle 25% of its trade with the rest of the world, reports say. markets.businessinsider.com 28.09.2023.
[3] Jennifer Sor: China and Russia have almost completely abandoned the US dollar in bilateral trade as the push to de-dollarize intensifies. markets.businessinsider.com 21.12.2023.
[4] BRICS expresses interests of global majority, says Russian presidential aide Ushakov. tass.com 05.03.2024.
[5] Last year, the BRICS approved the accession of Argentina, Ethiopia, Egypt, Saudi Arabia, the United Arab Emirates and Iran. Argentina has declared under its new ultra-right President Javier Milei that it does not want to join the alliance at this time. Saudi Arabia is still delaying the final accession at the moment with formal processes. Saudi Arabia has yet to decide on joining BRICS, South African envoy says. tass.com 26.02.2024.
[6] Aruni Soni: China and Saudi Arabia sign a $7 billion currency swap agreement, adding to de-dollarization push. markets.businessinsider.com 20.11.2023.
[7] See "Incomes that are not due to anyone".
[8], [9], [10], [11] Hanns Günther Hilpert: China's monetary policy offensive. SWP study 9. Berlin, March 2024.
[12] Bundesbank boss expects "digital euro" in four to five years. oldenburger-onlinezeitung.de 24.03.2024.