Yuan Overtakes Dollar in Chinese Cross-Border Transactions

Yuan by Braginjohn. Wiki Commons. Used with permission.

Yuan Overtakes Dollar in Chinese Cross-Border Transactions


This was the headline that came into my email a few days ago. A week ago, someone sent me a link to a videoconference where the premise was that the dollar was going to become “extinct.” Someone else emailed saying that they heard on the “news” that BRICS was forming a new currency that would put the dollar out of business. So, what’s real, what are sensationalized headlines and what is an outright ruse? Let’s dig in and discover. Below are a few of the areas we’ll plumb.
 
Yuan Overtakes Dollar in Chinese Cross-Border Transactions
The PetroYuan
Global Reserve Currencies
Is the Dollar on the Brink of Extinction
Will There be a BRICS Currency?
Global Tensions and Uncertainty 
Bank Failures
 
And here is more color on each of these topics.




Yuan Overtakes Dollar in Chinese Cross-Border Transactions
It was reported by Reuters on April 26, 2023, that the Chinese yuan overtook the dollar in Chinese cross-border transactions in March. Who is trading with China using the yuan? (Russia, Iran, Venezuela, Indonesia and Argentina) Does this have anything to do with Russian sanctions? (yup) How does this stand in the global marketplace? (small) Is the yuan on a path to dominate the world’s reserve currency? (not yet) Keep reading…


The PetroYuan
For more than a decade now, China and Russia have been building up their reserves of gold. The goal was to establish a gold-backed currency that could be used for trading, particularly with regard to the hottest and most widely traded commodity on the world market, oil. We’ve been writing about this for years. (See below for a list of some of the relevant blogs.) This came in quite useful when Russia was banned from SWIFT.

According to Reuters, "The yuan's share of Russia's currency market has leapt to 40% to 45%, from less than 1% at the start of last year. Its share of world trade financing, according to SWIFT, has increased to 4.5% in February from 1.3% two years ago. The dollar's is 84%."
 
Global Reserve Currencies
​ 
Since the trading of the yuan is new to the global stage, China and Russia wanted to assure potential customers that using the petroyuan would be secure, and that paper assets could be traded in for gold upon demand. However, it hasn’t yet translated to a meaningful challenge to the petrodollar. According to the IMF, the Chinese renminbi made up less than 3% of the world’s currencies in the 4th quarter of 2022.

Source: IMF.

Many countries are still reticent to use the petroyuan. Why? The dollar is freely convertible and highly liquid, while the yuan is not. According the Washington Post, there are also concerns about the yuan being a “managed currency produced by an opaque and unpredictable financial machine.”


So, just how much gold does China have? As you can see in the chart below, the United States treasure trove of gold is almost double that of Russia and China combined.

Source: The World Gold Council. Gold.org. Color Code: Black: holdings remained the same. Blue: holdings increased. Red: holdings decreased.

Is the Dollar on the Brink of Extinction


YouTube videos are going viral about an impending extinction of the dollar. While the Chinese renminbi is crawling toward a greater global share of the reserve currency, it is still one of the most thinly held and traded. It is crawling forward in relevancy, from not present at all just a few years ago. Russia, a country that is having great difficulty trading with many other countries, is the biggest customer.


Will There be a BRICS Currency?
The European Union managed to create the euro, so can Brazil, Russia, India, China, and South Africa do the same? At this point it appears that only Russia, Iran, Venezuela, Indonesia and Argentina are trading with China using the yuan. China is courting Saudi Arabia. However, if the reports are to be believed, there’s little interest in the Middle East to switch from settling in dollars to settling in yuan.


India is a democracy, and the two countries have a border dispute in the Himalayas. While China is India’s biggest trading partner, Reuters just reported that India has directed traders not to settle purchases of Russian oil and coal in yuan. It’s difficult to imagine India and China being part of the same central currency. There is just so much difference between the styles of governance, and the tensions can run pretty hot between those two countries.
​
So, who is the person talking up a BRICS reserve currency? He is Alexander Mikhailovich Babakov, a man who is very friendly with the current President of Russia, who is currently under EU, Canadian, Swiss and U.S. sanctions. He received the Order of Merit to the Fatherland (Russia) in 2020, and has received a number of other awards from his Presidential friend. (Someone you might entrust with your money?) The Russian propaganda machine is quite effective. How many people who are hearing about the BRICS currency know the “news” is coming from Babakov? (How many hucksters are capitalizing upon his statements to scare people into buying their scams?)
 
Another question that one might ask is why would anyone want to use a BRICS reserve currency? Russia is under heavy sanctions for what many people in the world have characterized as an illegal war. Neither China nor Russia is revered around the world as icons of personal freedoms, where we’d all love to move to. And the collective gold reserves of the BRICS block would be 20% of what is held by the United States and the European Allies.
 
While anything is possible, it would be an extremely dystopian world when the country that is now being the most heavily sanctioned becomes the world’s reserve currency. It’s a feat of social media gaming by Babakov to make this unlikely alliance sound plausible.
 
Global Tensions and Uncertainty 
We’re all keenly aware that there are alarming global tensions, war and uncertainty in the world. There’s far too much debt. The pandemic isn’t fully behind us. Central governments are raising interest rates to cool inflation. However, companies that have enjoyed free borrowing for so long are now facing serious trouble. Over half of the S&P500 is at or near junk bond status. There is a lot of fuel for the fire of conspiracy theories.
 
Bank Failures
The fate of First Republic Bank will likely be announced early this week. The Federal Reserve has set up a system to help banks keep from having to mark down the unrealized losses on their bond portfolios, which keeps their earnings looking better than they would otherwise look. However, it’s too soon to say that the crisis is behind us.
 
Bottom Line
There is truth in to the supposition that China and Russia would like to have their own reserve currency, and break the dominance of the U.S. dollar on the world stage. However, the larger question is whether or not the rest of the world wants to dive in. So far, interest in trading in the Chinese yuan is limited to less than 5% of trades.
 
It’s unlikely that the U.S. dollar becomes extinct or the Chinese yuan replaces the euro and all of the other basket of currencies as the world’s reserve currency -- at least not in the foreseeable future. Too many people enjoy the liquidity and stability of the euro, pound and dollar, and the adventures to be enjoyed in Europe, the United Kingdom and the United States. Freedom is at the top of our list of democratic ideals.
 
It is really fear that fuels these conspiracy theories. If we want to dampen the threat a BRICS currency might pose in the future, we’ll need to kick our oil addiction (that fuels the Russian economy) and stop using China as the factory to the world. Over half of each barrel of oil is used for plastic, polyester, the vinyl seats in our cars, rubber tires, the asphalt on our roads and other petrochemical products. Oil touches every aspect of our lives. Click to read a blog to discover how we can break our dependency on oil. (It’s not as easy as just buying an electric car.) The petrochemicals that spilled all over Palestine, Ohio are used to make quotidien products, even our tableware.
 
So What is the Cure?
The cure is admittedly complicated. We must know what is safe in the world that is drowning in debt, where long-term bonds are losing as much or more as stocks. We must know how to take a measured approach to hedges like gold, silver, and/or crypto (rather than be lured to dive all in with BRICS bait). We must have a system for rebalancing and capturing gains.
 
Our Thrive Budget® is a system to stop making everyone else rich at our own expense, including the landlord, the debt collector, the taxman, the gasoline station, the insurance salesman, the utility company, and more.
 
Our easy-as-a-pie-chart investing with regular rebalancing is a time-proven, 21st Century plan that earned gains in the Great and Dot Com Recessions, and outperformed the bull markets in between
 
Safe income-producing hard assets that you purchase for a good price will hold their value better in a Debt World.
 
When we stop reading sensational headlines and drown out the nightmarish noise, we can put our emotions on the right side of the trade.
 
This may sound difficult, but it costs less time and money than most of us spend. That is why we call it the life math that we all should’ve learned in high school. The sooner we implement it the better we’ll sleep at night, and the faster our lives transform.
 
 
Other Russia/China Blogs of Interest

Russia Sold U.S. Treasuries. Bought Gold. 
Why OPEC Really Cut Oil Production


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Natalie Pace. Photo by Marie Commiskey.

Natalie Wynne Pace is an Advocate for Sustainability, Financial Literacy & Women's Empowerment. Natalie is the bestselling author of The Power of 8 Billion: It's Up to Us and is the co-creator of the Earth Gratitude Project. She has been ranked as a No. 1 stock picker, above over 835 A-list pundits, by an independent tracking agency (TipsTraders). Her book The ABCs of Money remained at or near the #1 Investing Basics e-book on Amazon for over 3 years (in its vertical), with over 120,000 downloads and a mean 5-star ranking. The 5th edition of The ABCs of Money was released on September 17, 2021. 
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Important Disclaimers
Please note: Natalie Pace does not act or operate like a broker. She reports on financial news, and is one of the most trusted sources of financial literacy, education and forensic analysis in the world. Natalie Pace educates and informs individual investors to give investors a competitive edge in their personal decision-making. Any publicly traded companies or funds mentioned by Natalie Pace are not intended to be buy or sell recommendations.

ALWAYS do your research and consult an experienced, reputable financial professional before buying or selling any security, and consider your long-term goals and strategies. Investors should NOT be all in on any asset class or individual stocks. Your retirement plan should reflect a diversified strategy, which has been designed with the assistance of a financial professional who is familiar with your goals, risk tolerance, tax needs and more. The "trading" portion of your portfolio should be a very small part of your investment strategy, and the amount of money you invest into individual companies should never be greater than your experience, wisdom, knowledge and patience.  

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