China has been advancing its goal of positioning the yuan as an alternative to the U.S. dollar for settling international payments. The Chinese government recently struck a bilateral deal with Brazil to settle trades using their national currencies and completed a purchase of Liquefied Natural Gas (LNG) with a French company using yuan as payment.
China Advances De-Dollarization Efforts With Brazil and France
China is positioning its fiat currency, the yuan, as a substitute for the dollar in cross-border transactions. In this regard, the Chinese government recently completed the first LNG (Liquefied Natural Gas) import transaction settled in yuan and signed a bilateral agreement with Brazil that will permit the two nations to settle payments in their respective national currencies.
The Brazil-China agreement permits trade between the two nations using both the Brazilian real and the Chinese yuan. According to the Brazilian Trade and Investment Promotion Agency, it is anticipated that this agreement will simplify business dealings between the two nations, lowering expenses, encouraging even more bilateral trade, and easing investment.
Brazil's largest trading partner, China, accounts for $150 billion in bilateral commerce between the two countries in 2022.
The China National Offshore Oil Company (CNOOC) and France's Totalenergie handled the negotiations for the import of LNG, which involved the purchase of 65,000 tonnes of the commodity. The sale of the LNG of Arabian origin took place on the Shanghai Petroleum and Natural Gas Exchange.
According to the Chinese oil company, it is dedicated to innovation in terms of pricing and settlements. Yu Jin, the deputy general manager of CNOOC, said:
The promotion of international resource procurement based on yuan settlement can promote the globalization of energy trading and build a more diversified ecology.
Chinese CBDC Said to Be Key for Yuan’s Usage Growth
With Russia pledging to use the yuan to settle payments with emerging economies and other countries, the Chinese government has recently made significant progress in promoting the yuan as a replacement for the dollar in some settlements. However, analysts believe that its full adoption requires the implementation of a new set of policies.
Professor Ju Jiandong, an authority on the trade disputes between the United States and China, suggested a progressive tax on international capital transfers to protect the nation from foreign dangers. Jiandong clarified this as follows:
Such a policy design would be like installing a firewall and thus solving the dilemma of capital account liberalisation and yuan convertibility.
Jiandong believes that the introduction of the digital yuan central bank digital currency (CBDC) might offer the Chinese yuan an advantage over other currencies, despite the fact that just 2.19% of all worldwide payments are now settled in the currency. He declared:
If China can innovate the entire system through digital currency and establish a digital international currency system, it may have the opportunity to strengthen the yuan’s overseas use.
(Sergio Goschenko, Bitcoin.com, 2023)