Farewell to the US Dollar, Welcome Yuan - HATICE KARAHAN

Farewell to the US Dollar, Welcome Yuan

On Friday, the gigantic Silk Road project was the guest in our column. We may remember, as I did in the said article, before that I had also mentioned the approach between China-Russia in my articles on Asia-Pacific and Eurasia. .

The trade between these two powers which have been united for a while against the American hegemony was aimed to reach $100 billion this year, and as of 2020 is expected to double.

In this context, we witnessed that the chain of the cooperations that the Russian energy energized grew stronger with the signatures signed on May 8 for the Silk Road. An outstanding development recently has been the Russian banks' taking debt from China in the “Yuan currency”.


Based on this example, let me start pointing out that the cooperation is not only within the commercial dimension. We witness that recently Russia and China are concentrating on the financial cooperation. Yet last year in October, let's remember that Moscow and Beijing, in the bilateral payments, took a step, in order to make their wish come true to give an end to the dependency of the Western money: The central banks of the two countries had an exchange swap agreement in order to revive the trade in the national currencies. And just after that in November, Russia's biggest bank, Sberbank, also started to accredit in the Yuan currency.

Sberbank also recently reported that they put it both into practice and the cooperation with the Chinese banks gradually strengthened. According to the bank; as the Russian banks are gradually welcoming the agreements based on the Yuan, another target is the agreements with the Ruble.


Even the most remarkable example in this content is the Russian energy giant Gazprom. The company dreams of a trade without the US Dollar as much as possible. In this context, the negotiations have been going on for using the Yuan and/ or the Ruble as the currency of the agreements for the energy agreements which were signed with China. On the other hand, the Russian Finance Minister made statements that they consider it as a long term issue. While the minister reported that they started a careful workout on bonds denominated inYuan, the Russian Central Bank announced that they were working on a new financial instrument based on the Yuan.

As a matter of fact, when compared with the US dollar, it is obvious that the Yuan is a less suitable money currency to use . Thus, there are strong reasons why both the Russian government and Gazprom and the other companies are insisting on the exchange conversion.

As you may know, the Western sanctions come at the beginning of these. If the Russian economy, which already has a weak run and is quite narrowed with the sanctions, uses the Yuan instead of any other Western currencies, it is predicted that the risks will be reduced in trade.

It can be pointed out that; an important pillar of this is especially through the FED process against the increasing risks in the markets and being able to be more durable and increase the stability.

It is expected that the usage of the Yuan will reduce the cost for both sides. Meanwhile, let's remember that with a few of its partners, initially Japan and China, it has a trade experience with the other currencies rather than the US dollar.


Besides this, as I mentioned in the beginning of the article, the long term strong goal of China and Russia is to be united against the US power. Here, as one of the pillars of the bilateral cooperations which gained momentum, it is planned to be the financial transformation. However for some, the Yuan is a nominee to be the power to cope with the dominance of the US dollar in the world.

Of course there underlies the dream of China to make its currency used worldwide and make it a reserve currency. Today almost 63% of the reserves of the world central banks are of the US dollar currency. Euro follows the US dollar with 22%. As the Sterling and Yuan are about 4%, Canadian and Australian dollars are 2%. It seems that in the future, China will set its mind to take a remarkable slice of this cake and break the power of the US dollar.

Even nowadays China is in a rush to be able to put its national currency into the money currencies chart of IMF's SDR (Special Drawing Rights). However, this is going to be an important step to be an international reserve currency.

A few weeks ago, an IMF team visited China for a very beneficent job and found a report prepared including the future moves for the internationalization of the Yuan. As you may understand, China has taken it quite seriously and is waiting for any reply from the IMF. However, if this critical threshold could be overcome safe and sound, the will of the world central banks to keep the Yuan in their reserves could be strengthened.

On the other hand, even if China works with heart and soul, the said plans which are the critical pieces of the power claim on the global economy need a lot of labor and time. More importantly; these plans challenging America don't seem to please some people.



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