In March, for the first time, China carried out more cross-border transactions with its currency than with the US dollar, in a new milestone in Beijing’s plans to reduce its dependence on the US currency.

According to an analysis released today by Bloomberg Intelligence, based on data from the Chinese government, the use of the yuan in this type of operation reached an all-time high of 48% in March, when the use of the dollar in Chinese international transactions dropped to 47%.

In 2010, China practically did not use the yuan to settle this type of transaction, using the dollar almost exclusively.

This data is calculated based on the volume of all types of cross-border transactions carried out in the country, including the purchase and sale of shares, through the connections between the financial centers of Mainland China and Hong Kong.

“The increased use of the yuan could be a natural consequence of China opening up its capital account,” said Stephen Chiu, a currency analyst at Bloomberg.

However, the Chinese currency still only has a 2.3% share of global payments, according to data from the international payments system SWIFT.

China has been trying to internationalize the yuan since 2009, aiming to reduce dependence on the dollar in trade and investment deals and challenge the US currency’s role as the world’s main reserve currency. This issue has become more urgent as political frictions and the protracted trade and technology war between Beijing and Washington have resulted in the imposition of sanctions against various Chinese entities.

The debate over the fragmentation of the money market and the dilution of the dominance of the US dollar was also renewed by the sanctions imposed by the West against Russia. China strengthened cooperation with Moscow in terms of payment systems, promoting the use of the yuan in bilateral trade.

The dollar is used in 84.3% of trade globally, according to recent data released by the British newspaper Financial Times. But the yuan’s share has more than doubled since the invasion of Ukraine, from less than 2% to 4.5%, reflecting the greater use of the Chinese currency in trade with Russia.

On Tuesday, China’s State (Executive) Council reiterated its intention to increase the use of the yuan to settle transactions internationally.

“The yuan’s internationalization is accelerating as other countries look for an alternative payment currency to diversify risks as the [US] Federal Reserve has lost some credibility,” said Chris Leung, economist at DBS Bank.

The expert noted, however, that the US dollar will remain the world’s currency of choice for a long time: “The yuan’s share in global payments may be forever small”.

This month, the President of Brazil, Luiz Inácio Lula da Silva, attacked, in Shanghai, the dominance of the US dollar as the world’s reserve currency and called for the use of other currencies in the commercial relationship between Brazil and China.

“I ask myself every day why countries are obliged to do their trade in dollars”, said the Brazilian head of state, at the headquarters of the New Development Bank, created by the BRICS, the bloc of emerging economies that brings together Brazil , Russia, India, China and South Africa. “We need to have a currency that gives countries a little more peace of mind,” he added.

Michael Pettis, a professor of financial theory at the Guanghua School of Management at Peking University, then wrote on his official Twitter account that Lula’s statements are “the words of a politician” and “not those of someone who knows the global balance of payments”.

“He doesn’t realize that what matters is not the currency in which Brazilian trade is denominated. It could be dollars, yuan, reais, euros or even the Malaysian ringgit,” he pointed out.

“What matters are the assets in which exporters wish to accumulate the product of their exports,” he stated.

For Brazilian exporters to accumulate the yuan in their trade with China, Beijing would have to implement financial and monetary system reforms that are incompatible with its governance model, he pointed out.

Pettis considered that the “rigidity” of China’s financial system, in contrast to the “open” capital market in the United States, “prevents the yuan from assuming greater predominance as a reserve currency”.

“China would have to relinquish control over the current and capital accounts” and “accept a system of governance in which the decisions of a wide range of authorities would be subject to a transparent and predictable legal process”, so that the yuan could, “at least partially”, threaten the position of the dollar, said the academic, who has lived in the Asian country for two decades.

Source: notícias ao minuto