Beata Javorcik, Chief Economist of the EBRD, emphasizes Russia's switch to the Chinese Yuan in the report
Lead economist for the European Bank for Reconstruction and Development (EBRD), Beata Javorcik, discussed Russia's growing reliance on the Chinese yuan in international commerce. Her findings are consistent with a time when the U.S. dollar's share of global reserves has fallen below 60%. Russia and several other BRICS nations are also moving away from using the dollar as a trade currency.
Javorcik told Bloomberg on Wednesday, "You see that this rise in the use of the Chinese currency is coming at the expense of the U.S. dollar." She added that sanctions have "given countries impetus to think about diversifying invoicing currencies, and long-term this could erode the dominance of the dollar."
A research on the growing trend of nations adopting the Chinese yuan and creating swap lines and trade agreements with China's central bank was recently co-authored by Javorcik. Recently, China's imports from Russia have soared and reached a record high. The economist told Bloomberg that while new swap agreements with the People's Bank of China are forming, many already existed prior to the war between Russia and Ukraine.
"Many of these swap lines, they predate the war," Javorcik told the media. "War has given impetus to using the Chinese yuan as a currency," she continued.
The viewpoint of Javorcik is not generally held. Chinese currency is "not a serious threat to dollar hegemony," according to Benn Steil, director of international economics at the Council on Foreign Relations. However, a JPMorgan strategic analyst named Alexander Wise noted potential dangers to the U.S. currency in September and provided two specific scenarios in a company report.
In the same report, JPMorgan economist Jahangir Aziz noted that "the importance of the dollar has declined significantly from 2014 to 2022." Javorcik and EBRD economist Maxim Chupilkin note in the paper that while the dollar's hegemonic status aids in the imposition of sanctions against Russia, it also has drawbacks.
"The dominance of the U.S. dollar makes international sanctions more effective, as firms engaged in international trade overwhelmingly require payments to be cleared through the U.S. banking system," stated the authors. "At the same time, the use of economic sanctions may over time reduce the U.S. dollar's dominance and [its] attractiveness as a vehicle currency."
What do you think of the EBRD experts' predictions that the U.S. currency will lose some of its appeal in international trade? Post your ideas and viewpoints on this topic in the comments area below.