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The Chinese Yuan, won from the battle against Russia

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More than doubled its share of international trade

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China's currency, the yuan, has emerged as an unexpected winner in the economic war between Russia and the West, as its international use has significantly strengthened following sanctions against Moscow. Of course, Russian imports from China played a decisive role as they increased significantly when Moscow rushed to replace Western technology mainly with technology of Chinese origin but also many other items that it no longer imports from Western economies.

Over the past year the proportion of Russia's imports paid in yuan has risen to 23% from just 4% before the invasion of Ukraine. Besides, from March 2021 to March this year, the yuan's share in the global international trade financing system, which notably supports 80% of international trade, more than doubled. It is clear that after the sanctions imposed by the West against Moscow, Beijing has stepped up its efforts to wean China's economy off the dollar.

In fact, according to the estimates of some economic analysts, part of Beijing's motivation is that China is possibly preparing for the possibility of an armed conflict with Taiwan. China's efforts to wean itself off the US currency have been going on for more than a decade. What was required for Beijing was to avoid any kind of risk that could arise from the American economy such as, for example, the contagion of the financial crisis of 2008. At the same time, however, the second economy in the world had the ambition to create its own sphere economic influence.

However, the war in Ukraine and its aftermath accelerated these efforts by Beijing as Washington used the dollar and its sovereignty as a weapon to financially hurt Moscow and succeeded in cutting off Russia from international dollar transactions, thus limiting drastically its ability to trade with other countries. As, after all, a relevant Guardian report emphasizes, China encourages other countries to adopt the Chinese currency in their international transactions. Argentina and Brazil recently signed an agreement with China and will henceforth pay for imports of Chinese products in yuan instead of dollars.

Last month, after all, Bangladesh announced that it would repay in yuan a $318 million loan it had received from Russia to finance a nuclear power plant. This is, however, a rare case of an international transaction paid in yuan without China being involved on either side of the transaction.
However, as the British newspaper points out, China's economy is much more interconnected with the economies of the West than it is with Russia's economy. Many economic analysts estimate, thus, that in practice it is impossible for the West to hit China's economy without suffering corresponding blows itself. But again, Beijing is trying to protect itself as much as possible, and part of that self-protection is the maximum possible internationalization of the yuan.

So in March, a Chinese company paid in yuan for the purchase of 65,000 tons of liquefied natural gas from the French multinational TotalEnergies. China, after all, has developed an interbank payment system as an alternative to the international dollar-linked Swift system, and has already developed its own digital currency, e-CNY. All these technological achievements pale into insignificance when compared to the political and geopolitical factors driving the yuan's international role. China will loosen its tight controls on capital flows and allow its currency to float more freely, leaving the market to determine its exchange rates.

Source: www.kathimerini.com.cy

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