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The Rise of the Chinese Yuan: How It’s Overtaking the US Dollar in Global Trade

The global shift in currency usage has seen a significant milestone as the Chinese yuan emerges as the dominant currency for cross-border transactions, surpassing the US dollar for the first time in history. Moreover, as countries increasingly distance themselves from the dollar, the yuan’s adoption rate continues to rise, reshaping the landscape of international trade.

The Growing Dominance of the Chinese Yuan

In March, the total value of Chinese cross-border payments and receipts in yuan reached a record high of $549.9 billion, up from $434.5 billion in the previous month, according to Reuters. This surge has raised the yuan’s share of cross-border transactions to 48.4%, while the US dollar’s share declined to 46.7%.

China’s push for the international adoption of its currency comes as part of its efforts to reduce its reliance on the US dollar. As a result, the number of countries choosing to use the yuan for trade has significantly increased in recent months, demonstrating a growing global trend.

The Impact of the US Banking Crisis on Dollar Confidence

The ongoing US banking crisis, with four significant banks collapsing this year, has contributed to growing concerns about the dollar’s stability as a global reserve currency. As a result, several countries have sought alternative currencies for international transactions.

For example, on April 26, Argentina announced its decision to pay for Chinese imports in yuan rather than US dollars to conserve its dwindling dollar reserves. As a result, the Argentinian government plans to use the yuan to pay for approximately $1 billion worth of Chinese imports this month.

Exploring Alternative Currency Arrangements

Beyond Argentina, countries like Brazil, Russia, India, Kenya, Kazakhstan, Pakistan, Saudi Arabia, the UAE, and several ASEAN nations have opted to trade using local currencies instead of the dollar. For example, Brazil and China agreed to use their respective currencies for trade in late March, bypassing the dollar entirely.

The Bank of Thailand and China’s central bank are also discussing potentially implementing yuan-baht settlements to mitigate foreign exchange risk in light of the US dollar’s ongoing volatility.

Furthermore, a Russian government official has proposed the idea of a BRICS digital currency to help the bloc distance itself from the dollar.

The Dollar’s Diminishing Purchasing Power

The US dollar’s devaluation is not a recent phenomenon. On the contrary, its purchasing power had steadily decreased since 1971, when President Nixon ended the direct convertibility of dollars to gold. Despite this, central banks continue to hold approximately 60% of their foreign exchange reserves in dollars, according to Visual Capitalist.

Investors increasingly turn to alternative store-of-value assets like gold and Bitcoin as de-dollarization trends persist. Moreover, with the continued rise of the Chinese yuan and the decline of the US dollar, the demand for cryptocurrencies and commodities is expected to grow in the foreseeable future.