Posted on 06/21/2023 4:10:12 AM PDT by FarCenter
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With the ratcheting up of Western sanctions against Russia, many countries in the southern hemisphere have expressed a desire to reduce their dollar dependency. Not least among these has been the disclosure that Saudi Arabia and Brazil will use the RMB for bilateral trade with China. In both cases, China enjoys considerable monopsony power, being the largest importer of hydrocarbons, soy products and iron ore.
Despite the speculation, China’s progress appears limited. According to SWIFT data, transactions denominated in RMB accounted for less than 1.5% in December 2022 — slightly more than those denominated in Australian dollars and less than those denominated in Swiss francs. This puts RMB in a distant 7th place. The US dollar accounts for nearly 48% of the total.
There are two reasons why the RMB’s diminutive market share in cross-border payments using SWIFT might not be a fair reflection of the RMB’s use in trade.
First, not all cross-border transactions use SWIFT. Estimates by ANZ’s China research team suggest that about 20% of transactions settled using China’s own CIPS system do not use SWIFT.
Second, the total size of the cross-border payments market — around US$170 trillion per year — is about eight times larger than world merchandise exports at $22 trillion.
If one assumes the vast majority of international RMB usage is trade-related and not asset related — which seems reasonable given the low foreign participation rate in RMB-denominated asset markets and China’s dollar-centricity when it comes to their foreign assets — it might be that about 5-7% of world trade is already denominated in RMB, though such estimates need to be treated with caution. CIPS itself saw a 75% growth in settlement volume in 2021 to about 80 trillion RMB or US$13 trillion.
Some might interpret this level of RMB usage as disappointing. But if a collateral purpose of RMB internationalization is to immunize China from potential Western sanctions while providing sanctioned countries with a workaround and to provide efficiency gains in bilateral trade, then it is highly satisfactory from a Chinese perspective.
The return of Russian oil exports to above 2019 pre-war levels demonstrates that sanctions, though supported by countries representing more than half the world’s GDP, have lost some of their efficacy even while the US dollar remains hegemonic.
The ability to cut selected institutions out of the SWIFT system is a powerful tool of economic statecraft. But it must be remembered that trade took place before SWIFT was established and it is still possible — albeit more inconvenient and expensive — to conduct trade without SWIFT today.
If China is outside the sanctions, an RMB-based financial ecosystem helps facilitate and reduce the costs of sanction circumvention — as it was, in part, designed to do.
Service exports would only account for another small percentage of the remaining $148 trillion.
The bulk of cross border payments are financial transactions, i.e. buying of currencies, stocks, bonds, repos, swaps, futures contracts, other derivatives, etc.
The BRICS can do trade without involving themselves in the distributed, multi-player, digital game that is the Anglo-American dominated financial system.
That’s all very nice….
Wake me up when China decouples the yuan from the dollar.
As long as China is flooding the world with yuan and buying up dollars to maintain that ratio of about 7:1, then that means that the dollar is China’s reserve currency, and the yuan is based upon the dollar.
Seems that Biden has been paid off to allow for the Yuan to replace the US dollar as WRC. If it happens, all those retirement accounts will be worthless thanks to the Marxist Dems.
another reason why people might not use the yuan is because China is a police-state dictatorship that routinely lies thru its teeth
anyone who actually trusts China’s Govt. “statistics” is insane
And when operating outside of the SWIFT system..... When the only game in town becomes one of "more than one," it's no longer the only game in town. Biden (the third term of Obama) has so-o-o-o screwed things up.
Not necessarily.
I simply do not believe China will decouple the yuan from the dollar.
Let’s think about the consequences if they did and the yuan rose to parity with the dollar: All of a sudden, those iPhones made in China for $1000 would now cost AAPL $7000. Think AAPL will continue to build them in China?
If so, why do you think that?
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