Expanding Sway of Yuan

Chinese currency, Yuan is constantly expanding its sway over the globe.

And surprisingly, India is no small partner in boosting its international credentials what with the nation agreeing to pay for Russian oil in the Chinese currency.

Statistics bear out that since the outbreak of war between Russia and Ukraine, India has imported 15 times more oil from Russia (worth $44 billion) and has paid it in Yuan.

They agreed for Yuan as Russia was not able to accept dollars due to sanctions from the United State. India was not in favour of Rubles and the Russians were not comfortable with the rupee.

Ironically, while India is paying Russia in Yuan, Dollar is the currency of exchange for trade with the Chinese. China is India’s second largest trade partner.

But conversely, India is only 13th largest trade partner for China. The terms of trade being adverse, it restrains India from using Chinese currency with them being fully aware of how it could be a contributor to China’s ambition to gain supreme power status.

Evidently, India’s stance is one of being aware of both, the opportunity the situation offers and the crisis it could precipitate. Yuan has been making huge gains elsewhere too.

Several South American nations have adopted Yuan as the currency of exchange between them and China. Argentina’s largest appliance maker Newcan made a switchover to Yuan earlier this year to make payments to China.

Brazil’s new government headed by Inacio Lula Da Silva, soon after assuming office on the New Year announced that the Brazilian companies can settle their foreign payments in Chinese Yuan.

Brazilian companies have begun paying for liquid natural gas (LNG) purchased from French gas companies in Yuan. Even Russia is coercing smaller nations like Bangladesh to pay in Yuan for the power and gas it supplies.

Taken together, these are definite signs of de-dollarisation trend catching up and Europe is not immune to it. The shift signifies waning of Dollar and Euro. It is within the realm of anticipation that the large volume of trade between Russia and China would dent the dominance of Dollar.

As Russia and China band and bond together, the likely shifts in the shape of future international trade will be difficult to predict. Though it would be too early to foresee the Dollar’s decline, the US sanctions against Russia rather than crippling it, are hurting the US more than anyone else.

The Dollar which once accounted for 70 per cent of global foreign exchange reserves, has now fallen to 59 per cent.

But India needs to remain wary of rise of the Yuan as it is one among the few nations that share a border with it and has issues to settle in matters pertaining to the border row.

It is quite understandable that the Chinese insist on payments in the Yuan as it is keen to see it become the medium of reserve with the same respect as the Dollar.

With China’s objective of dethroning the Dollar from its preeminent position—which gives it the hegemony—being manifest, India would need to weigh its options as to where it stands in the ongoing Dollar-Yuan war.