Can Digital Yuan Challenge US Dollar's Dominance in International Finance?

[Riaz Haq]

China's central bank is testing its digital currency in several major Chinese cities. The chairman of US Federal Reserve has recently confirmed that the US Central Bank is working on digital dollar. The State Bank of Pakistan announced in 2019 that it was developing a digital currency. It seems that the popularity of Bitcoin has triggered serious worries of loss of control of the official financial systems among the central bankers around the world. China's substantial lead in digital currency could put it far ahead of the US in the future of global payments and financial settlement. It could eventually displace the US dollar and provide China with the immense global financial power that the US currently enjoys. 

Digital Yuan

Central Bank Digital Currency (CBDC):

What Is a Central Bank Digital Currency (CBDC)?  Investopedia defines it as a digital currency that "uses a blockchain-based token to represent the digital form of a fiat currency of a particular nation (or region)". A CBDC is centralized; it is issued and regulated by the  country's Central Bank. Unlike decentralized cryptocurrencies like Bitcoin, a CBDC would be centralized and regulated by a country's monetary authority.  

Motivations for such currencies are many, but the key one is to maintain control of the national and global finance. Another worry is that the use of unregulated digital currencies like Bitcoin could enable serious domestic and international crimes. It could also make tax evasion easier and hurt governments' ability to support public expenditure on education, healthcare, physical infrastructure, public safety, national defense and other priorities. 

 

Digital Yuan:

 

The People’s Bank of China, the Chinese Central Bank, is testing its e-yuan digital currency in Shanghai, Chengdu and other major cities. It has filed more than 100 patent applications for its digital currency. Reports indicate that the experiments are going smoothly, and soon people will have the option of downloading a government-issued digital wallet. Unlike commercial payment processors such as WeChat Pay and Alipay, the official Chinese version will be equivalent to an account at the central bank with the same guarantee as hard cash, according to The Economist magazine.  China is far ahead of of the rest of the world, including the United States in the development of a central bank-backed digital currency (CBDC). This could put it far ahead in the future of global payments and financial settlement. It could eventually displace the dollar and provide China with the immense global financial power that the US currently enjoys. 

China has set up a partnership with SWIFT, the Society for Worldwide Interbank Financial Telecommunications, that manages the global system for cross-border payments, through its digital currency research institute and clearing center.  SWIFT is a major vehicle for the United States to enforce its unilateral sanctions on countries like Iran, North Korea and Venezuela. China offers CIPS, cross-border interbank payment system, as an alternative to SWIFT. CIPS has only about 80 member banks worldwide compared to over 11,000 banks using SWIFT. 

Digital Dollar: 

US Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell have confirmed last week that they are working on digital dollar as a high-priority project. 

US Treasury Secretary Janel Yellen has been quoted by the media as saying: “I gather that people at the Federal Reserve Bank of Boston are working with researchers at MIT to study the properties of it. We do have a problem with financial inclusion. Too many Americans really don’t have access to easy payment systems and bank accounts. This is something that a digital dollar, a central bank digital currency, could help with. I think it could result in faster, safer and cheaper payments.”  

Digital Rupee: 

A top official of the State Bank of Pakistan, the nation's central bank, announced in April 2019 that the institution aims to issue a digital currency (Central Bank Digital Currency or CBDC) by 2025, according to media reports.   Speaking at the launch of regulations of Electronic Money Institutions (EMIs), central bank officials said that EMIs will be non-bank entities to be licensed by the central bank to issue e-money for the purpose of digital payments. Pakistan's finance minister Asad Umar and the central bankers said they are targeting Pakistan's economy to go fully digital by 2030.

More recently, the State Bank of Pakistan launched Raast, a digital payment system.  It is essentially a pipe that is intended to connect government and financial institutions with consumers and merchants with each other to process payments instantly at very low cost. Raast will be boosted by Pakistan government's decision to use it to pay salaries, pensions and pay welfare recipients under Benazir Income Support and Ehsaas Emergency Cash programs. 

Raast digital payment infrastructure represents a great leap forward for the use of financial technology (FinTech) and financial inclusion in the  country.  It will also promote e-commerce in Pakistan. Undocumented economy poses a serious threat to the country because it creates opportunities for criminal activities and tax evasion.  Raast is part of the government's effort to modernize payment systems and document the nation's cash-based informal economy. 

America's Global Financial Power: 

There's a common perception that the United State is abusing its extraordinary financial power to arbitrarily punish countries through its unilateral financial sanctions. This power stems mainly from the fact that the US dollar is the main international reserve and trade currency. It allows US to control multi-lateral financial institutions like SWIFT, World Bank, IMF and FATF. Many countries, including major US allies in Europe, are now looking to find alternatives to SWIFT. This has been specially true since former US President Donald Trump existed the JCPOA (Joint Comprehensive Plan of Action) agreed among the 5 permanent members of the UN Security Council (P5) plus Germany. Here's an excerpt of a recent New York op ed by Peter Beinart: 

"By deluding themselves about the extent of America’s might, they are depleting it. A key source of America’s power is the dollar, which serves as the reserve currency for much of the globe. It’s because so many foreign banks and businesses conduct their international transactions in dollars that America’s secondary sanctions scare them so much. But the more Washington wields the dollar to bully non-Americans into participating in our sieges, the greater their incentive to find an alternative to the dollar. The search for a substitute is already accelerating. And the fewer dollars non-Americans want, the harder Americans will find it to keep living beyond their means."

 

Summary:

Central Bank Digital Currencies (CDBDs) are gaining momentum with the talk of digital yuan and digital dollar. Motivations for such currencies are many, but the key one is to maintain control of the national and global trade and financial systems. If successful, these new currencies and associated payment systems could challenge the global financial power of the United States and fundamentally transform banking as we know it. 

Related Links:

Haq's Musings

South Asia Investor Review

COVID19 Pandemic in Pakistan

State Bank of Pakistan Plans Digital Currency By 2025

Raast Digital Payment System

Brothers From Rural Pakistan Teaching AI to American High Schoolers

Pakistan's Computer Services Exports Jump 26% Amid Coronavirus Lock...

Pakistan Gig Economy Among World's Fastest Growing

Digital BRI and 5G in Pakistan

Pakistan's Demographic Dividend

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State Bank Targets Fully Digital Economy in Pakistan

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FMCG Boom in Pakistan

Belt Road Forum 2019

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Riaz Haq's Youtube Channel

Viewpoint From Overseas Channel 

[Riaz Haq]

Arif Rafiq
@ArifCRafiq
“The only reason that America can run the deficits that it does is because the dollar is the global reserve…As we move to a more multipolar financial system, it will be tougher for the US to run big debts.”

https://twitter.com/ArifCRafiq/status/1635273905085755394?s=20


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Why Biden is wise to reduce the deficit
Progressives are a bit too sanguine about debt levels

https://www.ft.com/content/c99ba51b-3aac-40a4-b393-6fb5f56ba71b?acc...

by Raana Foroohar





Anyway, although we all know that tax cuts and trickle-down economics haven’t created more broadly shared prosperity, I’ve long thought that progressives were a bit too sanguine about debt levels. Let’s say, just for argument’s sake, that a mild recession produced a 20 per cent decline in tax receipts over the next year or two, which is not an unusual outcome during a down cycle, according to one of my favourite market analysts, Luke Gromen, who wrote about the topic recently in an issue of his newsletter, The Forest for the Trees. Let’s also assume a 4.5 per cent interest rate on federal debt (which may be a conservative estimate if the Fed keeps hiking), and a 12 per cent increase in entitlement payouts (also conservative given the number of ageing Americans). Taking those figures, Gromen shows that the interest expense of government debt would go back to the Covid crisis peaks that resulted in a “crash” in the UST market, and subsequently pushed the Fed into more quantitative easing.

I’m not saying this is about to happen. But I am saying that it’s a tricky time in the economy, with the end of cheap money, cheap labour and cheap energy, and that makes it a potentially dangerous time for any country or company holding much debt. The failure of Silicon Valley Bank and the subsequent dominoes now falling has reminded us that there is plenty of hidden risk in the system at the moment.


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The only reason that America can run the deficits that it does is because the dollar is the global reserve. That won’t change immediately, but I do believe that the balance of global reserves will change significantly over time, in part because energy autocrats have seen dollar reserves weaponised since the war in Ukraine. As we move to a more multipolar financial system, it will be tougher for the US to run big debts. We will eventually have to come back to the kind of guns and butter debates about spending that we stopped having from the late 1970s onwards. For this reason, I think it’s wise for the Biden administration to show it cares about debt. Ed, would you agree, and how will it play politically?

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Edward Luce Responds:




Will the resulting deficits endanger the US dollar? I don’t see much sign of that. The US dollar has accounted for around 60 per cent of global central bank reserves for the last couple of decades and that share has barely shifted. Countries without reserve currencies run budget deficits of 5 per cent of GDP without the sky falling on their heads. The key is to ensure that US trend growth is higher than interest rates on federal debt in order to hold it at stable levels. If that proves impossible, then the greenback could lose its throne. Even were Armageddon to strike, however, Art Laffer would still be available for power point presentations on his magical curve.

[Riaz Haq]

US bank trouble heralds end of dollar reserve system – Asia Times



https://asiatimes.com/2023/03/us-bank-trouble-heralds-end-of-dollar...

Bank crisis not a credit quality problem but stems instead from now-impossible task of financing America’s ever-expanding foreign debt

By DAVID P. GOLDMAN

“The dollar reserve system will go out not with a bang, but a whimper.”

Good article on how foreign banks will slowly start unwinding their $18 trillion of dollar-based assets, including US treasuries.

Gold and Chinese Yuan will become vital players in global trade. (Local currency swaps too).

Those who pooh-pooh yuan don’t understand that petroyuan is already a reality — Russian and Iranian oil are being sold in RMB.

And consider Turkiye’s currency (Lira) which was on a precipitous downfall but was saved by the embrace of China’s yuan.

Other countries should have really started de-dollarization after the 2008 financial crisis, but they succumbed to geopolitical pressure.


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The US banking system is broken. That doesn’t portend more high-profile failures like Credit Suisse. The central banks will keep moribund institutions on life support.

But the era of dollar-based reserves and floating exchange rates that began on August 15, 1971, when the US severed the link between the dollar and gold, is coming to an end. The pain will be transferred from the banks to the real economy, which will starve for credit.

And the geopolitical consequences will be enormous. The seize-up of dollar credit will accelerate the shift to a multipolar reserve system, with advantage to China’s RMB as a competitor to the dollar.

Gold, the “barbarous relic” abhorred by John Maynard Keynes, will play a bigger role because the dollar banking system is dysfunctional, and no other currency—surely not the tightly-controlled RMB—can replace it. Now at an all-time record price of US$2,000 an ounce, gold is likely to rise further.

The greatest danger to dollar hegemony and the strategic power that it imparts to Washington is not China’s ambition to expand the international role of the RMB. The danger comes from the exhaustion of the financial mechanism that made it possible for the US to run up a negative $18 trillion net foreign asset position during the past 30 years.

Germany’s flagship institution, Deutsche Bank, hit an all-time low of 8 euros on the morning of March 24, before recovering to 8.69 euros at the end of that day’s trading, and its credit default swap premium—the cost of insurance on its subordinated debt—spiked to about 380 basis points above LIBOR, or 3.8%.

That’s as much as during the 2008 banking crisis and the 2015 European financial crisis, although not quite as much as during the March 2020 Covid lockdown, when the premium exceeded 5%. Deutsche Bank won’t fail, but it may need official support. It may have received such support already.

This crisis is utterly unlike 2008, when banks levered up trillions of dollars of dodgy assets based on “liar’s loans” to homeowners. Fifteen years ago, the credit quality of the banking system was rotten and leverage was out of control. Bank credit quality today is the best in a generation. The crisis stems from the now-impossible task of financing America’s ever-expanding foreign debt.

It’s also the most anticipated financial crisis in history. In 2018, the Bank for International Settlements (a sort of central bank for central banks) warned that $14 trillion of short-term dollar borrowings of European and Japanese banks used to hedge foreign exchange risk were a time bomb waiting to explode (“Has the derivatives volcano already begun to erupt?”, October 9, 2018).

In March 2020, dollar credit seized up in a run for liquidity when the Covid lockdowns began, provoking a sudden dearth of bank financing. The Federal Reserve put out the fire by opening multi-billion-dollar swap lines to foreign central banks. It expanded those swap lines on March 19.

[Riaz Haq]

US bank trouble heralds end of dollar reserve system – Asia Times



https://asiatimes.com/2023/03/us-bank-trouble-heralds-end-of-dollar...


Correspondingly, the dollar balance sheet of the world banking system exploded, as gauged by the volume of overseas claims in the global banking system. This opened up a new vulnerability, namely counterparty risk, or the exposure of banks to enormous amounts of short-term loans to other banks.

America’s chronic current account deficits of the past 30 years amount to an exchange of goods for paper: America buys more goods than it sells, and sells assets (stocks, bonds, real estate, and so on) to foreigners to make up the difference.

America now owes a net $18 trillion to foreigners, roughly equal to the cumulative sum of these deficits over 30 years. The trouble is that the foreigners who own US assets receive cash flows in dollars, but need to spend money in their own currencies.

With floating exchange rates, the value of dollar cash flows in euro, Japanese yen or Chinese RMB is uncertain. Foreign investors need to hedge their dollar income, that is, sell US dollars short against their own currencies.

That’s why the size of the foreign exchange derivatives market ballooned along with America’s liabilities to foreigners. The mechanism is simple: If you are receiving dollars but pay in euros, you sell dollars against euros to hedge your foreign exchange risk.

But your bank has to borrow the dollars and lend them to you before you can sell them. Foreign banks borrowed perhaps $18 trillion from US banks to fund these hedges. That creates a gigantic vulnerability: If a bank looks dodgy, as did Credit Suisse earlier this month, banks will pull credit lines in a global run.

Before 1971, when central banks maintained exchange rates at a fixed level and the United States covered its relatively small current account deficit by transferring gold to foreign central banks at a fixed price of $35 an ounce, none of this was necessary.

The end of the gold link to the dollar and the new regime of floating exchange rates allowed the United States to run massive current account deficits by selling its assets to the world. The population of Europe and Japan was aging faster than the US, and had a correspondingly greater need for retirement assets. That arrangement is now coming to a messy end.

One failsafe gauge of global systemic risk is the price of gold, and especially the price of gold relative to alternative hedges against unexpected inflation. Between 2007 and 2021, the price of gold tracked inflation-indexed US Treasury securities (“TIPS”) with a correlation of about 90%.

Starting in 2022, however, gold rose while the price of TIPS fell. Something like this happened in the aftermath of the 2008 global financial crisis, but the past year’s move has been far more extreme. Shown below is the residual of the regression of the gold price against 5- and 10-year maturity TIPS.


If we look at the same data in a scatter plot, it’s clear that the linear relationship between gold and TIPS remains in place, but it has shifted both its baseline and steepened its slope.

In effect, the market worries that buying inflation protection from the US government is like passengers on the Titanic buying shipwreck insurance from the captain. The gold market is too big and diverse to manipulate. No one has a lot of confidence in the US Consumer Price Index, the gauge against which the payout of TIPS is determined.

The dollar reserve system will go out not with a bang, but a whimper. The central banks will step in to prevent any dramatic failures. But bank balance sheets will shrink, credit to the real economy will diminish and international lending in particular will evaporate.

At the margin, local currency financing will replace dollar credit. We have already seen this happen in Turkey, whose currency imploded during 2019-2021 as the country lost access to dollar and euro financing.

[Riaz Haq]

The dollar is our superpower, and Russia and China are threatening it

by Fareed Zakaria

https://www.washingtonpost.com/opinions/2023/03/24/us-dollar-streng...


The dollar is America’s superpower. It gives Washington unrivaled economic and political muscle. The United States can slap sanctions on countries unilaterally, freezing them out of large parts of the world economy. And when Washington spends freely, it can be certain that its debt, usually in the form of T-bills, will be bought up by the rest of the world.
Sanctions imposed on Russia for its invasion of Ukraine combined with Washington’s increasingly confrontational approach to China have created a perfect storm in which both Russia and China are accelerating efforts to diversify away from the dollar. Their central banks are keeping less of their reserves in dollars, and most trade between them is being settled in the yuan. They are also, as Putin noted, making efforts to get other countries to follow suit.

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China Says It Will Set up Yuan Clearing Arrangements in Brazil


https://money.usnews.com/investing/news/articles/2023-02-07/china-s...

BEIJING (Reuters) - China's central bank has signed a memorandum of understanding on setting up yuan clearing arrangements in Brazil, it said on Tuesday, in a move to help boost the currency's global clout.

The establishment of such arrangements for the renminbi (RMB), or the yuan, would be beneficial to cross-border transactions, and further promote bilateral trade and investment facilitation, the People's Bank of China said on Tuesday.

China has in recent months signed similar yuan clearing deals with Pakistan, Kazakhstan and Laos.

Two-way trade between China and Brazil reached $172 billion in 2022, according to data from Chinese customs.

China has been trying to boost the yuan globally since 2009 to reduce reliance on the U.S. dollar in trade and investment settlements and challenge the greenback's role as the world's major reserve currency.

[Riaz Haq]

China, Malaysia to discuss Asian Monetary Fund to reduce dependence on US dollar

https://www.foxbusiness.com/economy/china-malaysia-discuss-asian-mo...

China and Brazil recently struck a deal to ditch the U.S. dollar in favor of their own currencies in trade transactions

Malaysia is reviving a decades-old proposal to create an Asian Monetary Fund to reduce dependence on the U.S. dollar, with China being open to talks about the matter.

Malaysian Prime Minister Anwar Ibrahim proposed the fund last week, Bloomberg reported.

"When I had a meeting with President Xi Jinping, he immediately said, ‘I refer to Anwar’s proposal on the Asian Monetary Fund’, and he welcomed discussions," Anwar, who also serves as the country's finance minister, told the Malaysian parliament on Tuesday.

"There is no reason for Malaysia to continue depending on the dollar," he added.

Anwar said he shelved forming an Asian Monetary Fund during his first stint as finance minister in the 1990s. At the time, the idea failed to gain traction as the U.S. dollar was still seen as strong, he said.

The dollar index reached a record-high in September 2022 as other Asian currencies hit multi-decade lows, the news report said.

Recently, China and Brazil struck a deal to ditch the U.S. dollar in favor of their own currencies in trade transactions.

[Riaz Haq]

Genevieve Roch-Decter, CFA
@GRDecter
Chinese Yuan overtakes US dollar as most-used currency in China's cross-border transactions for the first time in history.

Yuan-share rose to a record high of 48%, UP from nearly zero in 2010.

U.S-share declined to 47%, DOWN from 83% over the same period.

Wow.

https://twitter.com/GRDecter/status/1651280199034585089?s=20



The dollar falls behind the yuan for the first time in Chinese cross-border transactions


https://markets.businessinsider.com/news/currencies/dedollarization...

The yuan overtook the dollar as the most used currency for Chinese cross-border transactions.

Its use in cross-border payments and receipts increased to 48% versus 47% for the dollar.

China is pursuing further use of the yuan to avoid currency mismatches in trade.

For the first time ever, the yuan has eclipsed the US dollar as the most used currency for Chinese cross-border transactions.

The yuan's use in cross-border payments and receipts rose to 48.4% at the end of March while the dollar's share slid to 46.7%, according to a Reuters calculation of data from China's State Administration of Foreign Exchange.


In 2010, the yuan's share was nearly 0% while the dollar's was 83%, according to Bloomberg. The reversal comes amid China's efforts to empower the yuan, also known as the renminbi, in trade and capital markets.

Meanwhile, Chinese bonds have seen greater inflows recently, alongside outflow increases to Hong Kong stocks.

Increased reliance on the yuan will reduce any risks of currency mismatches. For this reason, China's State Council is encouraging expansions in the renminbi's use for cross-border transactions.

But the dollar remains dominant beyond China's borders. For example, the yuan's share of global currency transactions for trade finance was just 4.5% in March compared to 83.7% for the dollar, per Reuters.



Still, the yuan has continued to make inroads, especially since Western sanctions that froze Russia's foreign exchange reserves highlighted the potential risk of holding dollars.

China has entered into non-dollar trade agreements with countries such as Brazil. And the yuan has overtaken the dollar as Russia's most traded currencysince Moscow was largely cut off from global finance after its invasion of Ukraine last year.

But analysts say the dollar is unlikely to lose its dominance in global markets in the foreseeable future. That's as the yuan is too tightly controlled by the Chinese government.

Read the original article on Business Insider

[Riaz Haq]

Speaking at ET Awards for Corporate Excellence 2023 last week, the veteran banker had said, “I genuinely feel that the biggest financial terrorist in the world is the US dollar." Telling why he feels this way, the Kotak Mahindra Bank chief stated that all our money is in nostro accounts and somebody in the US can say

https://youtu.be/QXC9BsiRLlU

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'I'd like to correct': Uday Kotak clarifies ‘financial terrorist’ statement about US dollar

In the March quarter, Kotak Mahindra Bank witnessed a notable increase in its standalone net profit, which rose by 26.3 per cent year-on-year to reach Rs 3,495.6 crore

https://www.businesstoday.in/industry/banks/story/uday-kotak-clarif...

Uday Kotak, the CEO of Kotak Mahindra Bank, has provided further clarification on his recent statement about the US dollar being the "biggest financial terrorist in the world." Kotak clarified in a tweet that his statement about the "financial terrorist" was not specifically aimed at the US dollar but rather at the disproportionate power that any reserve currency holds.

According to Kotak, the US dollar's status as a reserve currency gives it an unfair advantage in controlling global transactions, which could potentially result in other countries becoming overly reliant on it. He further elaborated that a reserve currency wields significant power, including the ability to dictate whether money in nostro accounts can be withdrawn, which can have a profound impact on the global financial landscape. Kotak believes that the world is actively searching for an alternative reserve currency and posits that India has the potential to promote the Indian Rupee as a strong contender to fill this role on the global stage. By doing so, he suggested that India can reduce its dependency on the US dollar and promote a more diversified, stable global financial system.

He clarified his previous statement in a tweet saying, "In a recent discussion on the US dollar, I inadvertently used words 'financial terrorist,' which I would like to correct. What I meant was that a reserve currency has disproportionate power, whether it is nostro account, 500 bps rate increase, or emerging countries holding $ for liquidity."

In the March quarter, Kotak Mahindra Bank - the second-largest private bank in India - witnessed a notable increase in its standalone net profit, which rose by 26.3 per cent year-on-year to reach Rs 3,495.6 crore. The bank's net interest income (NII) also saw a significant jump of 35 per cent YoY to reach Rs 6,102.6 crore.

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A nostro account refers to an account that a bank holds in a foreign currency in another bank. Nostros, a term derived from the Latin word for "ours," are frequently used to facilitate foreign exchange and trade transactions.

https://www.investopedia.com/terms/n/nostroaccount.asp#:~:text=A%20....

[Riaz Haq]

#Pakistan joins global trend in dumping #US #Dollar for #Chinese #yuan. The first shipment of over 750,000 barrels of #Russian #oil is expected to arrive in June, with Pakistan agreeing to a discounted per-barrel price of around $50–$52. #energy
https://www.cryptopolitan.com/pakistan-joins-in-dumping-usd-for-yuan/


Pakistan decides to purchase discounted Russian oil using the Chinese yuan, joining the global trend of de-dollarization.
The first shipment of over 750,000 barrels is expected to arrive in June, with Pakistan agreeing to a discounted per-barrel price of around $50–$52.
The decision follows sanctions imposed on Russia by the EU, G7, and their allies in response to Russia's invasion of Ukraine.
In a move reflecting the global shift towards de-dollarization, Pakistan has decided to purchase discounted Russian oil using the Chinese yuan.

As part of the BRICS economic bloc’s efforts to conduct international trade in currencies other than the US dollar, Pakistan’s decision signals another transaction conducted using an alternative currency.

Alternative payment for Pakistan amid sanctions
Pakistan is set to pay for Russian oil with the Chinese yuan, as local media report that the first cargo of over 750,000 barrels is expected to arrive in June.

Although the exact amount and mode of payment have not been disclosed, sources reveal that Pakistan has agreed to a discounted per-barrel price of around $50–$52, significantly lower than the G7 price cap on Russian oil of $60 per barrel.

This development follows sanctions imposed on Russia by the EU, G7, and their allies, including a ban on seaborne oil exports and a price cap on Russian oil.

These measures were in response to Russia’s invasion of Ukraine and aimed to distance the nation from the West. Amid the focus on the Chinese yuan, talks of a BRICS trading currency are expected to progress at the annual BRICS summit.

The growing influence of the Chinese Yuan
With the first shipment of 750,000 barrels anticipated to dock in June, Pakistan plans to pay for Russian crude oil using Chinese yuan. The Bank of China is expected to facilitate the transaction.

However, the mode of payment and the discount offered to Pakistan remain undisclosed, as publicizing such information is not considered beneficial for either party.

An official from Pakistan’s Ministry of Energy stated that Russia would supply URAL crude in the test cargo, which Pakistan Refinery Limited (PRL) will likely refine.

Meanwhile, other sources report that Pakistan has agreed to a per-barrel price of around $50-52, lower than the G7 price cap on Russian oil of $60 per barrel.

The decision to use the Chinese yuan for this transaction illustrates the currency’s growing acceptance in international trade, as well as concerns about the US abusing its dollar hegemony through sanctions.

The yuan’s stability, China’s economic strength, and its large consumer market make it an increasingly reliable choice for international settlements.

In recent months, several countries have expressed their inclination to settle trade deals in the yuan instead of the US dollar. Iraq’s central bank announced in February that it would trade with China using the yuan.

Argentina followed suit in April, declaring that it would start paying for Chinese imports in yuan rather than in US dollars.

According to data from multiple sources, the yuan became the most widely used currency for cross-border transactions in China in March, overtaking the dollar for the first time.

The yuan was used in 48.4 percent of all cross-border transactions, while the dollar’s share declined to 46.7 percent from 48.6 percent a month earlier.

This shift towards the Chinese yuan can be attributed to China’s ongoing efforts to open its financial sector, making it easier for global investors to participate in its domestic financial market.

As the yuan’s role in global payment and settlement, foreign exchange reserves, and investment and financing expands, the de-dollarization trend is expected to continue.

[Riaz Haq]

Top 10 Countries that Export the Most Goods and Services (Current US$ millions - World Bank 2020)

https://worldpopulationreview.com/country-rankings/exports-by-country

Rank Country Exports (Current US$)
1 China $2,723,250.43
2 United States $2,123,410.00
3 Germany $1,669,993.51
4 Japan $785,365.75
5 United Kingdom $770,478.62
6 France $733,165.40
7 Netherlands $711,504.80
8 Hong Kong (China SAR) $612,566.52
9 Singapore $599,216.28
10 South Korea $596,945.20

Profiles of the world's largest exporters
1. China
Aside from the European Union (which is a collective of many countries), China is the world’s largest exporter. In 2020, China exported an estimated $2.72 trillion worth of goods and services, primarily electronic equipment and machinery such as broadcast equipment, computers, integrated circuits, office machine parts, and telephones. In 2018, China’s exports made up about 10.78% of the global total.

2. United States

The U.S. is the second-largest exporter in the world, with an estimated $2.12 trillion in exports for 2020. The largest exports of the U.S. are crude and refined petroleum; integrated circuits; pharmaceuticals and medical instruments; and aircraft including planes, spacecraft, and helicopters as well as their replacement parts. One of the reasons that the United States lags behind China in exports is the cost of labor. Many goods cannot be produced, manufactured, or assembled in the U.S. for a price comparable to that in China.

3. Germany
Having exported an estimated $1.67 trillion worth of goods and services in 2020, Germany is the world’s third-largest exporter. As one of the most technologically advanced countries in the world, Germany’s main exports include automobiles (BMW, Mercedes-Benz, Porsche, Audi, Volkswagen), pharmaceuticals (Bayer), aircraft, machinery, electronics, and chemicals. Germany is the third of three countries to have exports exceeding $1 trillion, behind only China and the United States.

4. Japan
Japan’s exports for 2020 were valued at an estimated $785.4 billion. Japan’s major exports include automobiles (Toyota, Honda, Nissan, Mazda, Suzuki, more) and automobile parts, integrated circuits and electronic devices (Nintendo, Panasonic, Sony, and many more). Japan's largest export customers are China, the United States, South Korea, Taiwan, and Hong Kong.

5. United Kingdom

The United Kingdom ranked as the fifth-highest exporter in the world in terms of dollar value in 2020, shipping an estimated $770.5 billion in goods and services to international customers. The U.K.'s top exports include cars (Bentley, Jaguar, Mini, Rolls-Royce, more), gas turbines, gold, medicines, hard liquor, antiques, and crude petroleum (which is often first imported from Norway, then exported to the rest of Europe, as well as China and South Korea).

[Riaz Haq]

Arnaud Bertrand
@RnaudBertrand
SCMP editorial: https://scmp.com/comment/opinion/article/3242880/dollar-still-king-...

"The increasingly close relationship between China and Saudi Arabia has taken another significant step forward. The central banks of both countries have agreed on their first currency swap...

In the longer term, it augurs a petroyuan future as the two countries are already the most important trading partners of each other.

In a global political economy long dominated by the petrodollar, this could be the beginning of a seismic shift."


https://x.com/RnaudBertrand/status/1728923824996139481?s=20

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The increasingly close relationship between China and Saudi Arabia has taken another significant step forward. The central banks of both countries have agreed on their first currency swap worth a maximum of 50 billion yuan (HK$55 billion) over the next three years.

In immediate terms, the pact will foster bilateral commerce denominated in both the yuan and the riyal. In the longer term, it augurs a petroyuan future as the two countries are already the most important trading partners of each other.

In a global political economy long dominated by the petrodollar, this could be the beginning of a seismic shift. It has been a very long time coming.

Almost a year ago, President Xi Jinping made a historic visit to Riyadh, followed by Hong Kong Chief Executive John Lee Ka-chiu in February. A flurry of deals followed.


The Shanghai Stock Exchange and its Saudi counterpart have started collaboration on cross-listings, including exchange-traded funds (ETFs), financial technology (fintech), environmental, social and governance (ESG) and data exchange.

China, Saudi Arabia central banks sign currency swap accord to foster trade
21 Nov 2023
The People’s Bank of China (PBOC) building in Beijing on Tuesday, April 18, 2023. Photo: Bloomberg
The Hong Kong Monetary Authority, the city’s de facto central bank, and the Saudi Central Bank have enhanced ties covering the latest technologies in regulatory supervision and monitoring, and in financial fields such as tokenisation and new payment systems.

However, the latest currency swap pact will be the most important. It means trade can be conducted in local currencies, instead of defaulting to the US dollar. This may be seen as a challenge to US dollar dominance. Perhaps in the longer term, it is. But there is a good economic reason.

The current US federal interest rate of 5-plus per cent has pushed the dollar to historical levels against most other currencies, making trade denominated in the dollar more expensive.

There are obvious advantages for two big trade partners like China and Saudi Arabia to be able to utilise a local-currency option, which will help relieve pressures from having to trade in a more expensive currency.

Global “de-dollarisation” may take a while yet, but the trend already reflects cracks in a global economy long used to US currency settlements.

The yuan may or may not pose a challenge to dollar hegemony, but its internationalisation continues apace – to the benefit of both the Chinese and global economies.