Introduction.
Recently, Russian First Deputy Prime Minister Belousov said that the proportion of settlement in RMB and rubles has reached 95% of the bilateral amount between China and Russia.
It is worth noting that this proportion was only about 3% in 2013, increased to about 25% in 2020, and exceeded 50% in 2022.
It can be seen that the de-dollarization of the world is accelerating, so why are China and Russia at the forefront of this, and does this mean that the renminbi will replace the dollar?
1. The United States abuses its financial hegemony.
After the end of World War II, the United States became the world's largest power, relying on its strong economic strength to establish the Bretton Woods system, and the dollar was directly linked to **.
After the collapse of this system, the United States formed the petrodollar system by controlling the world's oil ** and continued to maintain its financial hegemony.
The U.S. dollar is the world's most important denomination, payment and reserve currency, which allows the U.S. to levy a "seigniorage" on the world through the U.S. dollar and to create a financial crisis by manipulating the exchange rate, from which it can reap huge speculative benefits.
At the same time, the dollar can also be used as a sanction tool to isolate sanctioned countries from the international payment system, thereby severely damaging their financial systems.
Russia suffers greatly from this.
After the Crimean crisis in 2014, the United States imposed a number of financial sanctions on Russia's banking and energy sectors.
In 2017, the U.S. Congress restricted U.S. companies from buying Russian government bonds and froze the assets of some Russian individuals and organizations in the U.S., citing Russia's alleged interference in the United States.
In 2022, Russia launched a special military operation in Ukraine, and the United States and other Western countries increased sanctions against Russia, froze the assets of Russian state-owned banks, kicked Russia out of the SWIFT payment system, and restricted it from using US dollars, euros and other currencies for settlement.
SWIFT is the abbreviation of the International Fund Clearing System, which is currently the most important international financial trading platform in the world, connecting tens of thousands of financial institutions in more than 200 countries around the world.
Through the SWIFT system, the United States is able to grasp the transaction information of banks of various countries in a timely manner and make them subject to the long-arm jurisdiction of the United States, kicking Russia out of this system, which is a direct manifestation of US financial hegemony.
In this case, Russia did not retreat, but saw the trick, using the advantages of oil and natural gas resources, the United States and other countries as "unfriendly countries", forcing them to use rubles to settle when purchasing Russian energy, which not only frustrated the United States' plan to bring down the Russian economy, but also allowed Russia to rely on oil and gas to rise instead of falling nominal GDP.
In order to counter the United States, Russia also took the initiative to start the process of de-dollarization.
In 2014, the US dollar accounted for 45% of Russia's foreign exchange reserves, and by 2021, the Russian Ministry of Finance will eliminate all the US dollars in sovereign wealth** and state welfare** and replace them with ** and the yuan.
As of 2023, there are a total of 3,074 sovereign rights of Russia400 million RMB, 55127 tons600 million euros and 5300 million rubles, the yuan already has an absolute advantage.
And Russia's ability to stabilize its financial markets in the short term and successfully de-dollarize is inseparable from close cooperation with China, so how can China and Russia work together to achieve a win-win situation?
2. Settlement in local currencies between China and Russia.
In the face of sanctions imposed by the United States and Western countries, Russia has actively pursued the strategy of "looking east" and developed friendly relations with Asia-Pacific countries.
In recent years, China and Russia have achieved fruitful cooperation in energy, agriculture and transportation, creating conditions for the two countries to use local currencies for settlement.
In 2014, the Bank of Russia and the People's Bank of China signed a bilateral currency swap agreement, with a total amount of 150 billion yuan and 815 billion rubles, for a period of three years, which can be extended indefinitely by mutual agreement.
Since then, China and Russia have continued to deepen local currency cooperation, and in 2015, China's RMB cross-border payment system CIPS was launched in Russia, which can bypass SWIFT for cross-border settlement, and many Russian banks have connected to the system.
At the same time, Russia's own financial messaging system, SPFS, has also included Bank of China in its customer list, and Russia hopes to cooperate with China, Iran, Turkey and other countries to promote the wider application of SPFS in the world.
In addition, China has also taken advantage of mobile payment to open a Sino-Russian cross-border e-commerce platform, so that small transactions can be carried out directly online.
Even the most traditional cross-border cash transfer is constantly expanding the channels, the two countries have opened up two cash transfer lines from Harbin to Vladivostok and from Moscow to Harbin, and the two sides do not need to issue entry and exit certificates to realize the cash exchange demand, greatly reducing the cost of time and capital.
We all know that financial settlement is based on physical goods.
Relevant data show that in 2023, the amount of China and Russia will reach 240.1 billion US dollars, a year-on-year increase of 263%, according to Belousov's estimates, this figure is expected to reach $300 billion by 2030.
And energy is the most important thing in China and Russia.
In 2023, Russia will export 10.7 billion tons, with an output value of 60.6 billion US dollars, and exported 22.7 billion cubic meters of natural gas, with an output value of 6.4 billion US dollars, making Russia China's largest oil country and the second largest natural gas country.
The use of local currencies for energy transactions between the two countries can largely avoid the interference of dollar hegemony and inject a shot in the arm for the Russian economy.
In general, it is of great significance for China and Russia to carry out all-round economic cooperation around local currency settlement:
First, it will help Russia reduce its economic dependence on the West and ensure the stable development of its own economy.
Second, it will help expand the scale of China and Russia and promote cooperation in science and technology, humanities and other fields;
Third, Russia's choice to use the renminbi provides a model for other countries to carry out financial cooperation with China, and enhances the status and influence of China and Russia in the world.
From a global perspective, in addition to China and Russia, many countries have also started the process of de-dollarization to varying degrees for their own financial security, and the proportion of the dollar in global financial reserves has repeatedly hit new lows, while the status of the renminbi is steadily rising.
So, is it possible to say that the hegemony of the dollar will be terminated by the yuan?
3. Whether the renminbi can replace the dollar.
The decline of the hegemony of the US dollar and the internationalization of the renminbi are a trade-off process, and China is currently the world's second largest economy and the most potential consumer market.
However, for a long time, the status of the renminbi did not match China's actual economic status, and it is imperative to promote the internationalization of the renminbi.
In 2009, the RMB cross-border settlement pilot was launched, after which the use of RMB in the international market continued to expand, and in 2016, RMB was officially included in the currency basket of the International Monetary Organization, becoming the third largest world currency after the US dollar and the euro, up to now more than 30 countries and regions such as Russia and Pakistan use RMB for settlement.
At the end of 2023, there will be new progress in the internationalization of the RMB, with China and Saudi Arabia signing a currency swap agreement with a RMB size of 50 billion yuan, and Saudi Arabia is also considering using RMB for settlement in oil**.
We said above that the current hegemony of the dollar is based on the petrodollar system, and Saudi Arabia is the world's largest oil exporter, and these moves have further shaken the status of the dollar and opened the way for the yuan to go to the world.
However, we must also be soberly aware that there is still a considerable gap between the status of the renminbi and that of the US dollar.
Currently, the US dollar accounts for 595%, the proportion of RMB is 22%, while in the total amount of international payments, the dollar share is 4725%, the proportion of RMB is 46%。
It can be seen that the US dollar still has an absolute advantage, and there is still a long way to go in the internationalization of the RMB.
So what are the challenges facing the internationalization of the RMB?
First of all, the renminbi has not yet achieved full convertibility, China's current foreign exchange control is relatively strict, and renminbi investment can only be carried out through limited methods such as international direct investment (FDI) and qualified foreign investors (QFII). In the international market, if the renminbi cannot be freely convertible with strong currencies such as the US dollar, it will inevitably increase transaction costs significantly.
Second, China's financial market is not perfect enough, the degree of openness of banking, insurance and other industries is not high, and it is not able to support the free flow of RMB in the international market, and there is a lack of hedging tools and investment and financing channels to deal with exchange rate fluctuations, all of which have hindered the process of RMB internationalization to a certain extent.
Moreover, after experiencing a stage of rapid development, China's economy has entered a new normal, and the traditional production capacity is facing transformation, while it is difficult for the new quality productivity to make a big leap in the short term, and the long-standing structural contradictions have not been resolved.
The global epidemic and the conflict between Russia and Ukraine have followed, the global industrial chain has been impacted, and the uncertainty of the world economy has intensified due to energy and food, and it is difficult for China to stand alone, thus affecting the confidence of the international community in the RMB.
In general, the internationalization of the renminbi has been carried out quite cautiously, as can be seen from the communiqués of major meetings.
For example, in October 2020, the Fifth Plenary Session of the 19th Central Committee of the Communist Party of China put forward the statement of "steadily and prudently promoting the internationalization of the RMB", in October 2022, in the report of the 20th National Congress of the Communist Party of China, this expression was changed to "orderly progress", and in October 2023, the economic meeting was changed to "steady and prudent and solid progress".
This shows that the leadership has a very clear understanding of the internationalization of the renminbi, and China will continue to work steadily to increase the free convertibility rate of the renminbi, deepen financial reform, improve the financial market, maintain the stability and continuity of economic policies, and continuously improve the competitiveness of the renminbi in the international arena.
In time, the goal of RMB internationalization will be achieved.
Epilogue. Although the share of the dollar has been shrinking under the shock of emerging economies, it will not happen overnight to completely replace it.
In order to achieve the internationalization of the renminbi, it is necessary to strengthen cooperation with friendly countries, including Russia, and enhance its own economic and financial capabilities in order to usher in the final victory.