The Rise of the Chinese Yuan: A Threat to the Dominance of the Mighty Dollar?

The Chinese yuan has been gaining acceptance in international trade, with several countries considering it as an alternative to the US dollar.  China has emphasized settling oil and gas trades in yuan in recent years to establish its currency internationally. This trend could potentially weaken the dollar's status as the world's dominant currency.

France's First LNG Trade in Yuan:

China's national oil company CNOOC, and France's TotalEnergies settled an LNG trade in yuan for the first time in March. While the transaction involved LNG imported from the UAE, it is unclear why France chose to use yuan instead of the US dollar. The exchange was done through the Shanghai Petroleum and Natural Gas Exchange (SHPGX), as per Global Times. According to experts, the French either resorted to the yuan due to the acute shortage of Russian gas supplies to the European continent, or they have reserves in the Chinese currency that they want to use, adding, that the move comes as countries like UAE sense a “global imbalance of power” and look to expand relationships.

Iraq and Saudi Arabia Open to Alternative Currencies:

Iraq's central bank said it planned to allow trade from China to be settled directly in yuan for the first time, while Saudi Arabia's finance minister said the kingdom is "open to" alternative currencies to improve trade. Saudi finance minister Mohammed Al-Jadaan, speaking to Bloomberg at the World Economic Forum in Davos, said the Kingdom was ‘open to’ alternative currencies to “improve trade”.

Egypt and Israel's Use of Yuan:

Egypt issued bonds in yuan in August, while Israel added the currency to its foreign reserves in April. According to Al-Monitor, Egypt said it would issue bonds in yuan in August, while Israel added the currency to its foreign reserves in April.

Yuan Surpasses Dollar in Russia:

The Chinese yuan has surpassed the US dollar as the most traded currency in Russia, largely due to sanctions imposed on Moscow after it invaded Ukraine. Russian companies and the government have been forced to undertake foreign trade transactions in currencies of allies such as China and India, which have declined to support sanctions imposed by the West. Russia’s Finance Ministry converted its market operations to the yuan instead of the dollar earlier this year and developed a new structure for the national wealth fund to hold 60% of its assets in yuan, said a report by InvestorsKing, a financial news site that cited data from the Moscow Exchange.

Potential Impact on Dollar's Dominance:

The growing acceptance of the yuan in global trade could potentially weaken the dollar's status as the world's dominant currency. China has been pushing for the yuan's use in settling oil and gas trades to establish its currency internationally and weaken the dollar's grip on world trade. However, some analysts question whether Middle Eastern producers are willing to use the yuan on a large scale, as it may hurt their currencies that are tied to the dollar.

India's Reluctance to Use Yuan:

India has asked banks and traders to avoid using the Chinese yuan to pay for Russian imports. India, which is a top buyer of Russian oil, would prefer to settle trade in United Arab Emirates dirhams. The move is partly due to the ongoing standoff between Indian and Chinese troops along their border.