More countries are dumping the US dollar like the proverbial hot potato. As a result, its own currency, the yuan, controls Chinese cross-border transactions.
The Chinese yuan has overtaken the US dollar as the most used currency in China’s cross-border transactions for the first time in history.
Chinese cross-border payments and receipts in yuan rose to $549.9 billion in March from $434.5 billion in the previous month, according to Reuters.
This increased the yuan’s share of cross-border transactions to 48.4% while the dollar’s share fell to 46.7%.
China pays its own currency in international transactions in an effort to distance itself from the dollar. Moreover, the number of countries adopting the yuan for trade has increased in recent months.
Reuters male The volume of cross-border transactions covers both current accounts and capital accounts.
Countries standing in line to give up the dollar
The US banking crisis, which has seen four major banks collapse so far this year, is raising concerns about the dollar’s status as the global reserve currency.
This week, Argentina and China signed a similar agreement. On April 26, Reuters mentioned Argentina will start paying for Chinese imports in yuan instead of dollars. The move aims to relieve the country’s dwindling dollar reserves.
According to the Argentine government, the country aims to have about $1 billion in Chinese imports shipped in yuan instead of dollars this month.
On April 27, Thai local media mentioned The Bank of Thailand is in talks with the Chinese central bank. The two are considering using yuan-baht settlements to “mitigate foreign exchange risk amid the ongoing volatility of the US dollar.”
In late March, Brazil and China reached an agreement to use their currencies for trade instead of trading in dollars.
In addition to Brazil and Argentina, Russia, India, Kenya, Kazakhstan, Pakistan, Saudi Arabia, the United Arab Emirates, and several ASEAN countries have dropped the dollar in favor of local currencies for circulation.
In late March, a Russian government official spoke of a BRICS digital currency to take the block away from the dollar.
The depreciation of the US dollar over time
The divergence and depreciation of the dollar is nothing new. The dollar has waned in terms of purchasing power since 1971. This was when US President Nixon stopped direct conversion of dollars into gold.
However, central banks still hold about 60% of their forex reserves in dollars, according to Visual Capitalist.
The exit from the US dollar also saw inflows into valuable assets such as gold and bitcoin. As the dollarization trend continues, demand for cryptocurrencies and commodities is likely to increase.
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