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The yuan’s use in currency swaps surged to a record amount in the first quarter.
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That’s as central banks want to move away from the dollar, and deal with domestic difficulties.
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China has actively been entering into non-dollar agreements to raise the yuan’s global standing.
The use of Chinese yuan in foreign-exchange swaps underwent the second-largest quarterly surge at the end of March, as more countries transacted in the currency, Bloomberg reports.
In the first quarter, swap line balances accounted for 109 billion yuan, or 20 billion more than the previous quarter, according to cited data from the People’s Bank of China. That’s equivalent to $15.6 billion.
These are arrangements that allow central banks to exchange one another’s currencies, guaranteeing to return the money for the same exchange rate at a future date, with interest.
Countries may do this when needing to inject liquidity into their domestic banking system. Bloomberg notes that Argentina turned to swaps in April to counteract a major sell-off in its peso.
The yuan’s increased use may also indicate a global de-dollarization swing, as many central banks are moving away from reliance on the greenback. That’s after the US weaponized the dollar against Russian aggression, incidentally deterring other countries from relying on it too heavily.
For that reason, foreign banks have also led a surge in gold purchases in the previous few months, fueling a historic high in the last three quarters.
In a de-dollarized future, yuan has regularly been referred to as the potential alternative, but most analysts agree that it’s seriously handicapped by how tightly controlled the currency is by the Chinese government.
Nonetheless, China has been ramping up efforts to disrupt dollar trade, entering into non-dollar agreements with countries, such as Brazil and Kazakhstan. And amid Chinese cross-border transactions, the yuan recently topped the dollar as the most used currency.
The PBOC did not make public which central banks relied on the swap lines in the first quarter. Meanwhile, the US has standing currency swap agreements with five national banks in Canada, England, Japan, Switzerland and Europe.
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