China has advanced its goal of positioning the yuan as an alternative to the US dollar for settling international payments. The Chinese government recently reached a bilateral agreement with Brazil to settle trade using their national currencies and concluded a purchase of liquefied natural gas (LNG) with a French company using the yuan as a means of payment.
China advances de-dollarization efforts with Brazil and France
China is positioning its fiat currency, the yuan, as an alternative to the US dollar for international settlements. The Chinese government has recently taken two steps in this direction, inking a bilateral agreement with Brazil that will allow both countries to settle payments with their national currencies, and finish the first LNG (liquefied natural gas) import trade was settled in yuan.
The Brazil-China agreement allows the two countries to exchange goods using the Chinese yuan and the Brazilian real. According to the Brazilian Trade and Investment Promotion Agency, this agreement is expected to facilitate transactions between the two countries, reduce costs, promote even greater bilateral trade and facilitate investments.
Bilateral trade figures of China and Brazil hit the $150 billion mark in 2022, with China being Brazil’s largest trading partner.
In the case of the import of LNG, the negotiation was carried out between the China National Offshore Oil Corporation (CNOOC) and the French company Totalenergie, relating to the purchase of 65,000 tons of the raw material. The transaction was carried out on the Shanghai Petroleum and Natural Gas Exchange, which was used to sell LNG of Arab origin.
The Chinese oil company said it is committed to innovation in pricing and settlement. CNOOC Deputy General Manager Yu Jin said:
Promoting international resource supply based on yuan settlement can promote the globalization of energy trade and build a more diverse ecology.
China’s CBDC said to be key to growing yuan usage
While the Chinese government has recently made significant progress in promoting the yuan as a replacement for the dollar for certain settlements, with Russia pledging to use the currency to settle payments with emerging economies and other countries, analysts believe. that its full adoption requires the implementation of a new set of policies.
Professor Ju Jiandong, an expert on US-China trade disputes, has proposed a progressive tax on cross-border capital flows to protect the country from external risks. With that, Jiandong explain:
Such a policy would amount to installing a firewall and thus solving the dilemma of capital account liberalization and the convertibility of the yuan.
While the use of the Chinese yuan for global payments is still relatively low, with only 2.19% of total global payments settled in the currency, Jiandong believes that the introduction of the digital yuan central bank digital currency (CBDC) could give it an edge over other currencies. He stated:
If China can innovate the whole system through digital currency and establish a digital international monetary system, it may have the opportunity to strengthen the use of the yuan overseas.
What do you think of promoting the yuan as an international settlement currency?
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