China’s yuan makes Brazilian inroads, as ‘de-dollarisation reflects cracks’ in US currency settlements

Increase in yuan settlements with largest South American country shows how Beijing is trying to prevent being financially strangled amid US decoupling

But yuan’s overseas expansion is still curtailed by the fact that it is less convertible than the US dollar or euro, and as Beijing maintains strict capital controls

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Workers transfer soybeans – one of Brazil’s major exports to China – at a port in Jiangsu province. Photo: AFP

Published: 11:30pm, 3 Apr 2023Updated: 11:02am, 4 Apr 2023

China is leveraging its trade advantages to promote the use of its currency with major commerce partners, building up the yuan’s strength to challenge the US dollar’s dominance in the international monetary system, as highlighted by recent progress with the largest country in South America.

The push for yuan settlements in trade and investment, rather than US dollars as an intermediary, is one of many ways Beijing has set out to reduce its exposure to dollar assets and prevent China from being financially strangled by Washington.

As a leap forward was reported in its agreements with Brazil – its 10th-largest trading partner and a key supplier of iron ore and soybeans – and analysts expect a bigger use of currency in outbound investment in countries included in China’s Belt and Road Initiative, energy trade with Middle East countries and cross-border payments in digital currency.

Brazil has begun to accept trade settlements and investments in yuan, with an agreement reached between central banks in February, and the appointment of a yuan clearing bank and access to the Cross-border Interbank Payment System, the China equivalent to international financial messaging service Swift, last week.

Meanwhile, Brazil’s yuan-denominated foreign-exchange assets reached a new high of 5.37 per cent of the total by the end of 2022, surpassing euro assets to be the second-largest.