China’s trade influence could accelerate the yuan’s rise
One word often makes a big difference in Chinese policy. In previous five-year economic development plans, for example, Beijing has consistently reiterated its desire to “cautiously promote” the internationalization of the yuan. In the outline of the 2026-2030 blueprint announced last month, the word “caution” was included. This signals bolder plans for the renminbi, although progress will be limited as long as economic planners maintain tight controls on capital flows.
China’s $20 trillion economy may be the world’s second largest, but its currency was only the fifth most traded last year, according to a September report from the Bank of International Settlements. However, thanks to additional policies, including currency swap agreements with other central banks, the yuan now accounts for 8.5% of global currency transactions, up from 7% in 2022.
For Beijing, trade settlement will likely be the next focus, given China’s 15% share of $33 trillion in global trade by value. Notably, as part of a wider contract dispute, China’s steel industry has stopped purchasing dollar-denominated iron ore from Australia’s BHP BHP since October, according to Chinese media, citing sources, and insisting that the mining giant will settle 30% of transactions in yuan in future. Separately, the Chinese unit of Dutch chipmaker Nexperia has requested all transactions be settled in yuan, Reuters reported, citing sources, after The Hague took control of the company’s Netherlands-based parent in September, triggering a wider impasse.
These steps can have an immediate impact. Up to 12.4 trillion yuan ($1.7 trillion) of trade with China was paid in local currency last year, or about 27% of the total, according to the country’s central bank’s yuan internationalization report published last week. Completing 30% of imports from BHP could add $39 billion in yuan-denominated transactions annually. And the use of the renminbi will be attractive to countries looking to reduce their dependence on the US dollar. That number includes Brazil and Russia, which each exported $31 billion worth of soybeans and $50 billion worth of crude oil to the People’s Republic of China last year.
Chinese planners have long maintained that their plan is not to replace the greenback with the “redback.” And it is unlikely they will allow the country’s currency to flow freely across its borders. However, Beijing’s trade influence could help it shake off the dollar’s dominance.
CONTEXT NEWS
Commodities news portal SteelOrbis reported on Oct. 11 that BHP had agreed with China Mineral Resources Group to switch to yuan settlement for 30% of spot ore trade with China, citing sources.
Separately, Dutch chipmaker Nexperia’s China unit has resumed supplying semiconductors to local distributors, but all sales to distributors must now be settled in yuan, Reuters reported on October 23, citing two people briefed on the matter.
Source: Reuters
