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Countries around the world who have faced U.S. sanctions in recent decades have long fumed over the role of the U.S. dollar in the world financial system, a phenomenon set up after WWII with the Bretton Woods Agreement, where the dollar became the de facto global trade and reserve currency. The system gives the United States incredible financial power, to allow a nation’s economy to thrive, or die.
Nations adversarial to America have been actively attempting to change this system for some time, with limited success. Russia and China are two of those countries, which say they have reduced the dollar’s role in trade between the two nations to below 50%.
The US currency’s share in Russian-Chinese trade dropped by 5 percentage points in Q1 2020, reaching a historic low of 46%, Izvestia writes after analyzing statistics of the Central Bank and the Federal Customs Service. For the first time, the greenback accounted for less than half of the settlements in foreign currency between Russia and China. Meanwhile, the positions of national currencies and the euro hit a record high: 24% and 30%, respectively. However, the ruble’s share was almost unchanged and remained at 7%, the average for the past three years. The trend for replacing the dollar with other currencies in trade with China will gain pace in the near future, but the Russian ruble still remains too volatile to take a significant place in settlements, experts told the paper, reported Russian state news agency TASS.
This year saw a sharp increase in the risks of new serious sanctions against China, which could also affect trade, Executive Vice-President of the Russian Union of Industrialists and Entrepreneurs Alexander Murychev told Izvestia. Beijing is trying to reduce potential damage and shift settlements to other currencies. It’s much harder for Washington to track yuan-based or euro-based transactions, he explained.
Basically, this opens up unprecedented opportunities for increasing the ruble’s role in trade with China, Murychev noted. However, given its volatility, the Russian currency is unlikely to occupy a notable place. A more real alternative is to gradually switch to settlements in digital currency. China has been actively fulfilling a project towards a national crypto currency, the expert recalled. Russia is working on a law on digital financial assets, which will boost the discussion on the economic role and status of virtual money to a new level, he noted, added TASS.
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