“The yuan is becoming increasingly relevant as currency for international trade,” said Luis Galli, chief executive of Newsan. “But beggars don’t get to choose. This deal was born out of necessity.”
Argentina’s economy is — again — in crisis. A drought has wiped out key agricultural exports, pushing the economy, already grappling with skyrocketing inflation, to the brink of recession.
With Argentina’s supply of U.S. dollars dwindling as a result, the government in April announced it would pay for $1 billion worth of imports from China in yuan — and for $790 million worth of monthly imports thereafter.
It also activated a currency swap agreement, making it possible for companies to borrow yuan from China, Argentina’s second-largest trading partner.
The deal was welcome news for Beijing, which has long wanted its currency in wider use and to enjoy some of the power and prestige that the United States enjoys thanks to the dollar’s global domination.
It wasn’t having much luck — until recently. Suddenly more customers are willing to settle their bills in Chinese yuan, thanks variously to domestic economic crises, Western sanctions against Russia, China’s position as a major lender and growing concerns about being beholden to Washington’s policies.
In Buenos Aires, importers have embraced the change. “Everybody is plunging headlong to get their imports in yuan right now,” said Rubén Guidoni, a customs broker. “It is incredibly difficult to get those in dollars.”
Importers in Argentina have to submit their orders, almost always denominated in dollars, for the government’s approval. But with dollars in short supply, getting approval had become almost impossible, bringing some industries close to a standstill.
But the orders in yuan are quickly getting the green light. Argentine companies are now using the yuan to pay for more than half of the computers, textiles, mobile phones and motorcycle parts that they import from China, said Alejandra Conconi, executive director of the Argentinian-Chinese Chamber of Production, Industry and Commerce.
And for its part, Newsan has been issuing orders in yuan every week.
Brazil’s government last month announced companies could settle their trade in yuan. In March, a French firm accepted payment in yuan for 65,000 tons of liquefied natural gas. A few weeks earlier, the yuan became the most-traded currency on the Moscow stock exchange.
None of these are signs the yuan is going to dethrone the dollar any time soon, according to economists inside and outside China. This would require more countries to pay each other in yuan for large amounts of trade that doesn’t involve China, which isn’t yet happening.
The dollar’s widespread use makes it difficult to displace. Because it is widely used, it is easy to exchange, creating more incentive for countries to use it. This network effect encapsulates part of the challenge to adoption of the yuan, which is more expensive and inconvenient partly because there is less of it circulating outside China.
But the recent flurry of settlements in yuan do constitute some progress toward Chinese leader Xi Jinping’s vision: with China at the helm of a global economic order that is insulated from the fluctuations of the dollar and Western sanctions.
This effort has taken on fresh urgency amid worsening tensions between the Moscow and Washington, and Beijing has watched with concern as the West piled sanctions on Russian firms.
“Beijing is capitalizing on a broader diplomatic push to identify China as the leader of essentially a new nonaligned movement,” said Gerard DiPippo, a former U.S. intelligence officer and senior fellow at the Center for Strategic and International Studies in Washington. “A country’s willingness to go along with this is part of the broader diplomatic push of political alignment.”
So far, it hasn’t added up to a dramatic economic shift. The majority of countries that have shown interest in using the yuan are grappling with their own economic distress, like Argentina, or looking to trade with Russia despite sanctions, like Brazil. And though the yuan’s share of global trade finance has more than doubled since 2021, it still makes up less than 5 percent.
But even marginal increases in the yuan’s international circulation bolster the idea that China’s currency could be a bulwark against not only Western sanctions but also the floating dollar, the instability generated by the collapse of multiple U.S. banks and Washington’s looming debt ceiling showdown.
“The dominance of the dollar makes the world heavily dependent on the United States,” said Xi Junyang, vice director of the Research Center for Modern Finance at the Shanghai University of Finance and Economics. “It makes the Federal Reserve the institution that determines the monetary and financial affairs of the entire world.”
Countries that have strong trade ties to Russia, like Brazil, have viewed reliance on the dollar with wariness in the aftermath of the sanctions. In a speech in Shanghai last month, Brazilian President Luiz Inácio Lula da Silva called on the large and developing economies of Brazil, Russia, India, China and South Africa to ditch the dollar.
The idea has gained momentum since the West leveled an unprecedented battery of sanctions against Russian entities, turning the dollar’s ubiquity into a weapon.
“There clearly is a lot more interest, not just from China and Russia but from a lot of other countries, in looking for alternatives to the dollar payment system because everyone has seen the ways in which this can be weaponized by the United States,” said Arthur Kroeber, head of research at Gavekal Dragonomics, a China-focused economics consultancy. “Everyone has some degree of concern about what happens if, for whatever reason, the U.S. decides they want to put sanctions on us.”
Beijing is already exploiting the vacuum created by Western sanctions on Russia. China’s trade with Russia was up 153 percent last month compared with April last year, according to Chinese customs data.
Other countries that want to trade with Russia despite sanctions are increasingly looking at the yuan as an alternative to the dollar.
Last month, Bangladesh announced it would pay $318 million to a recently sanctioned Russian nuclear power developer using the yuan, transferring the money through the international payments network that China developed as an alternative to the more widely used Western network.
The payment has yet to be made, and reports have surfaced that the United States — Bangladesh’s largest trading partner — placed further sanctions on companies involved, in a warning to Dhaka against proceeding.
Still, trade settlement is one area where Beijing can slowly push for global use of the yuan. The goal, analysts say, isn’t full decoupling from the dollar system as much as boosting the perception that the yuan is as stable and useful as the Japanese yen or the euro.
“As China’s trade and investments expands overseas, we should have a level playing field,” Yi Gang, the governor of China’s central bank, said in April at the Peterson Institute for International Economics. “We respect the choices of enterprises and families; it’s great if they use the yuan, and it is also fine if they prefer U.S. dollar, euro, or Japanese yen. … We want fair competition.”
Li reported from Seoul, Feliba from Buenos Aires. Anant Gupta in New Delhi contributed to this report.
