Russian Foreign Minister Sergei Lavrov called on China and Russia to reduce their reliance on the U.S. dollar and the Western-controlled international payment system to reduce the risk of being sanctioned by the West ahead of his visit to China this week. Analysts believe that the U.S. and its Western allies are joining forces to counter the Russian-Chinese threat, forcing Beijing and Moscow to jointly accelerate the pace of decoupling from the U.S. dollar and establishing an alternative to the Western payment system.
Dan Popescu, a Canadian foreign exchange and precious metals investment analyst, told the Voice of America that the efforts by China and Russia to reduce their dependence on the U.S. dollar have been underway for years, and the trend has recently intensified due to the international situation, including the pressure on the Communist Party of China by the Trump administration.
Popescu said China and Russia have found that the Biden administration has not eased up on the issue of U.S.-China and U.S.-Russia confrontation since taking office. Biden does not seem to be as aggressive and domineering as Trump, but he seems to be following the same line as Trump,” he said. And Biden is also resisting Russia. So after the U.S.-China meeting in Alaska, Communist China and Russia held this meeting and decided to accelerate the pace of decoupling from the dollar.”
The United States, the European Union, the United Kingdom and Canada imposed sanctions on Chinese officials on Monday (March 22) over human rights issues in Xinjiang. Earlier, 24 Chinese mainland and Hong Kong officials were also sanctioned by the U.S. government for undermining Hong Kong’s autonomous status. In addition, many Chinese business entities, including huawei, have also been subject to U.S. sanctions.
Russia’s annexation of Crimea in 2014 and the crisis in Ukraine have worsened relations with the West. Russia was recently sanctioned by the United States over the poisoning of opposition leader Narvani, which included seven Russian officials and 14 entities.
China and Russia have long been aware that the U.S. dollar is a powerful weapon that allows the United States to exercise effective sanctions against countries like China and Russia.
In 2019, Putin told a meeting of BRICS leaders on the sidelines of the G20 summit that integrating the payment systems of the five countries and establishing independent information exchange channels could improve the security of BRICS financial operations and strengthen the banking system’s resilience to external influences.
Russian Ambassador to China Denisov estimated last December that the share of local currency settlement in Russian-Chinese trade would reach 25 percent by 2020. He said both Russia and China have to look for settlement currencies other than the U.S. dollar because “in today’s world, the dollar is not a simple financial instrument and has essentially become a political lever for the United States.
Both Russia and China have sharply reduced the dollar share of their foreign exchange reserves in the past two years, increasing the euro share and also increasing their Gold reserves, said Popescu, a Canadian financial analyst.
“Russia has cut the dollar share of its international reserves to about 20 percent, which is now lower than the euro and gold.” Popescu said, “Russia has pushed quite a bit in this regard, and China holds more U.S. Treasuries, although signals were released to reduce that portion of reserves.”
In Popescu’s view, a series of recent statements by President Joe Biden could accelerate the rush by China and Russia to decouple from the dollar.
At a press conference this Thursday, Biden said the Chinese Communist Party president is a man who “doesn’t have a shred of democracy in his bones. Earlier, Biden also agreed in a televised interview to accuse Russian President Vladimir Putin of being a “murderer” – and Russia immediately recalled its ambassador to the United States as a result.
However, the yuan is still a far cry from the international dominance of the dollar and the euro.
The Society for Worldwide Interbank Financial Telecommunication (SWIFT) released data on March 17 local Time showing that in February 2021, the yuan maintained its global payment ranking of fifth place in the global payment currency ranking based on the amount statistics, with a global payment share of only 2.2 percent.
In the payment amount ranking of major currencies, the U.S. dollar, the euro, the British pound and The Japanese yen ranked the top four with 38.43%, 37.13%, 6.57% and 3.18% of the total, respectively.
In the third quarter of 2020, about 56 percent of global central bank reserves were held in the form of the U.S. dollar, which remains the preferred global reserve currency, with the yuan accounting for only 2 percent, Reuters said, citing data from the International Monetary Fund.
In addition, the Chinese government has been encouraging the use of its self-developed alternative to SWIFT for cross-border payments solutions.
In October 2015, the People’s Bank of China launched the Renminbi Cross-Border Payment System (CIPS). A number of Russian banks have joined CIPS, and Russian-Chinese gas, oil and gold transactions could theoretically be settled in yuan.
Reuters reported that in 2019, the system is processing 135.7 billion yuan ($19.4 billion) per day. However, most of China’s cross-border transactions are still settled in U.S. dollars through the SWIFT system.
Similar to China, Russia has established its own banking information system, SPFS, as an alternative to SWIFT. Russia also said in February that it was including the yuan and the yen in its national wealth fund.
Popescu said the yuan has been gaining international acceptance in recent years, but “there is still a long way to go. What China and Russia can do is use their own currencies if they trust each other, and Russia seems to have increased the share of Chinese bonds in its international reserves,” he said. In addition, they are using the yuan in trade and commerce between Russia and China. That’s what they can do. They’re already doing it.”