Analysts say China and Russia have dramatically scaled down bilateral trade settlement in the greenback, as they pursue a “financial alliance” that will reduce their dependence on the US dollar.
The dollar accounted for only 46% of trade settlement between China and Russia in the first quarter of 2020, according to data from Russia’s Central Bank and Federal Customs Service.
The first quarter marks the first time on record that the dollar’s share of trade between China and Russia has dropped beneath the 50% level, for a dramatic plunge compared to around 90% as recently as 2015.
Escalating trade tensions between China and the US since the start of the Trump administration saw this share drop to 51% by 2019.
In the first quarter China and Russia’s own national currencies accounted for a record high 24% share of bilateral trade settlement, while the euro’s share was 30%.
Alexey Maslow, director of the Institute of Far Eastern Studies at the Russian Academy of Sciences, said that the joint pursuit of “dedollarization” by China and Russia was about to reach a “breakthrough moment,” which would culminate in a closer alliance between the two nations
“The collaboration between Russia and China in the financial sphere tells us that they are finally finding the parameters for a new alliance with each other,” said Maslow to the Nikkei Asian Review.
“The alliance is moving more in the banking and financial direction, nd that is what can guarantee independence for both countries.”
Chinese officials have recently called for greater internationalisation of the renminbi, in order to avoid the possibility of the US applying punitive sanctions against China similar to those already in force against Russia.
Fang Xinghai, vice-chair with the China Securities Regulatory Commission (CSRC), said that China’s dependence upon the US dollar for international payments put it in a position of vulnerability vis-a-vis potential sanction measures by the Trump administration.
“Such things have already happened to many Russian business and financial institutions,” said Fang at a forum held by financial news outlet Caixin.
A report from Bank of China’s investment unit BOCI said that China’s dependence upon the Belgium-based SWIFT system – the main network employed by banks for international financial transactions – made it vulnerable to punitive action on the part of an increasingly hostile US.
This punitive action could potentially assume the form of cutting off access to SWIFT, as well as a ban on certain Chinese banks from US dollar settlement.
“A good punch to the enemy will save yourself from hundreds of punches from your enemies,” said the report. “We need to get prepared in advance, mentally and practically.”
The BOCI report called for China to make greater use of its own Cross-Border Interbank Payment System (CIPS), which was established in 2015 as part of efforts to advance internationalisation of the Chinese renminbi.