In recent years, China’s yuan has replaced the US dollar as the most traded currency in Russia, marking a significant shift in the global financial system. China has made significant strides in expanding the use of its currency, in global transactions. One notable development is the increasing adoption of the china’s yuan as a most traded currency in Russia.
The shift towards yuan-denominated transactions in Russia has been driven by a combination of economic and political factors. For one, China has become Russia’s largest trading partner, with bilateral trade between the two countries reaching $107 billion in 2021. As a result, there is growing demand from Russian businesses to transact in yuan, rather than converting their currency into US dollars, which incurs additional costs and exposes them to exchange rate risks.
According to the data, the China’s yuan replaced the US dollar in monthly most traded currency for the first time in February.
Moreover, the ongoing tensions between Russia and the West, particularly the US and the EU, have led to a desire for greater economic and financial independence. By increasing the use of the china’s yuan in trade, Russia is reducing its dependence on the US dollar and the Western-dominated financial system. This aligns with long-standing ambition to internationalize its currency china’s yuan and reduce the dominance of the US dollar in global transactions.
According to the Central Bank of Russia, China’s Yuan Replaces Dollar as Most Traded Currency, accounted for 18.7% of all payments made between Russia and China, while the US dollar’s share fell to 14.3%. This marks a significant shift from just a few years ago when the US dollar accounted for more than half of all Russia-China payments.
The growing use of the china’s yuan in Russia is also reflected in the country’s foreign exchange reserves. The Central Bank of Russia has been gradually increasing its holdings of yuan, which reached a record high of 15.4% of the country’s foreign exchange reserves in the second quarter of 2021, up from just 0.1% in 2014. This diversification of reserves helps to reduce Russia’s reliance on the US dollar and enhances its financial stability.
The switch comes after additional sanctions this year affected the few banks in Russia that retained the ability to make cross-border transfers in dollars.
While the increasing use of the china’s yuan in Russia is a significant development, it is still a relatively small part of the global currency market. The US dollar remains the most traded currency in global transactions, with a share of around 60%. However, the trend towards greater use of the yuan in international trade is likely to continue, especially as China‘s economy continues to grow and its financial markets become more open.
The rising popularity of the yuan in Russia highlights the growing influence of China’s yuan in the global economy and its efforts to promote the internationalization of its currency. At the same time, it reflects Russia’s desire for greater economic and financial independence from the West. While the china’s yuan is still far from replacing the US dollar as the most traded currency in global transactions, its increasing use in international transactions is a sign of the changing dynamics in the global economy.