Two weeks ago, Russia and China took a
major step away from the use of the American dollar in agreeing to develop bilateral trade using the Russian rouble and the Chinese yuan.
“Russia and China intend to develop the practice of settlements in national currencies,” said President Vladimir Putin after meeting President Xi Jinping in St Petersburg. He added that both countries had signed agreements to expand the use of their currencies in bilateral financial operations.
This move is long awaited and makes perfect sense, given the
growing economic ties between Moscow and Beijing, and attempts by the United States to exploit the special position of its currency to force other countries to do its bidding. China-Russia bilateral trade reached US$24.2 billion in the first quarter of 2019, according to Chinese customs, up almost 30 per cent over the corresponding period last year. China has become Russia’s largest trade partner with about 14 per cent of payments in yuan and 7-8 per cent in rouble.
There are plans to reach US$200 billion in mutual trade by 2020, sign a local currencies settlement agreement later this year and extend the use of the national credit-card systems Union Pay and Mir in both countries. Members of the Eurasian Economic Union and other emerging economies have also declared their readiness to avoid using the US dollar and to increase settlements in local currencies. In May last year, China and the Eurasian Economic Union signed a trade and economic agreement as a base to reduce dollar dominance in trade and as an important milestone in realising the linking of the union to the Belt and Road Initiative, China’s massive infrastructure project.
China is the world’s largest importer and second largest consumer of crude oil. Last year, it launched a yuan-denominated crude oil futures contract on the Shanghai Stock Exchange – the so-called
petroyuan – amid a growing willingness from Iran, Russia, Saudi Arabia and Venezuela to settle oil payments in yuan and other non-dollar currencies. Despite the risk of currency fluctuations and the concerns of traders, the petroyuan is a necessary step in creating a potential rival to dollar-denominated benchmark oil prices – West Texas Intermediate and Brent Crude – and reducing the dollar dominance in the commodities trade.
