Yuan payment red

Following a decrease in confidence in the dollar, and its possible collapse, Russia, in settlements with foreign partners, is switching to other currencies.


Following a decrease in confidence in the dollar, and its possible collapse, Russia, in settlements with foreign partners, is switching to other currencies.

The US claims that Russia is encroaching on the dollar are untrue.

"We would use the dollar, they don't give us it," Russian President Vladimir Putin said. - And how do we perform calculations? In a currency that is acceptable to our partners. The yuan is one of these currencies, especially since it is used by the International Monetary Fund. "

In mutual settlements, Russia and China are switching to national currencies, and the demand for the yuan is growing. Russian enterprises began to place bonds in Chinese currency. Moscow and Beijing have stepped up efforts to diversify reserves and central banks are reducing the share of dollar assets, a correspondent for The Moscow Post reports.

Following a meeting of the Russian-Chinese intergovernmental commission in December 2022, Deputy Prime Minister Alexander Novak said that settlements for gas supplies to China are carried out in rubles and yuan, both countries have begun transferring energy trade to national currencies. Supplies to China of oil and petroleum products are moving towards the same format. Deliveries of Chinese equipment to Russia begin when calculating for it in rubles and yuan.

But a dollar-independent two-way settlement system doesn't solve all the problems. The sanctions confrontation is pushing Russia to take further steps. One of them is the possibility of switching to settlements in yuan with third countries. As Vladimir Putin said: "We are in favor of using yuan for settlements between Russia and the countries of Asia, Africa and Latin America."

The beginning of the dollar shake

The dollar retains a unique status, providing, in the words of Farid Zakariy, America's "superpowers." But confidence in the American "hard currency" is thinning, its share in the reserves of central banks has decreased to 60% and continues to decline.

There are enough reasons for the fall in trust. Among them is Washington's reckless willingness to use the dollar and international settlements dependent on the United States for political purposes. China's Global Times put it this way: "The idea that the United States can seize the assets of anyone who refuses to obey Washington's diktat really makes you nervous. That's why more countries are now trying to diversify their reserve assets away from dollars. "

Another reason for the decline in confidence is that the US national debt has exceeded $31.4 trillion and amounts to about 130% of GDP. The cost of new borrowing is growing, which further burdens the federal budget. It rose from 0.5% to almost 5% per annum. Debt service-only spending (interest payments) promises to rise from $640 billion in fiscal 2023 to $739 billion in 2024 and to $1.4 trillion in 2033, nearing 20% of the spending portion of the U.S. budget. In total, by 2035, these payments could amount to about $10-11 trillion.

The situation of some EU countries is also precarious. The national debt of Italy is 147% of GDP, Spain - 116%, Greece - 176% of GDP. The bank balances of these countries are overloaded with bonds with a yield of either comparable or lower than the current refinancing rate. At the current rate of 3.5%, it will be difficult for European banks to ensure their sustainability. German banks, with a reputation as the most reliable among the leading EU banks, have also stumbled. In particular, Deutsche Bank shares lost 14% in price. Germany's Commerzbank fell 8.5% and France's Société Générale fell 7.4%. Raising funding from the ECB could result in losses.

Arabs help us

The monopoly position of the dollar as a settlement currency in the oil market has remained for almost forty years. In particular, due to the readiness of Saudi Arabia to play according to American rules. In the 1970s, the Americans, in exchange for military support, managed to convince the Kingdom to switch to trading oil in dollars. In 1975, OPEC countries decided to make payments for oil exclusively in American currency.

But Er Riad's ties with Washington have weakened in recent years, as has the US position in the Arab world. In 2017, China pushed the United States from the position of the largest importer of oil. Accordingly, the yuan can squeeze the dollar in calculations for Chinese oil imports and become part of global calculations.

In December 2022, Xi Jinping visited Saudi Arabia, where he met with leaders of the Gulf Arab Cooperation Council and discussed the transition to settlements in the renminbi oil and gas trade. The Shanghai Oil and National Gas Exchange may become a platform for settlements for the supply of raw materials, Reuters reports.

Saudi Arabia - the world's largest oil exporter and a central figure in OPEC - is already in talks to use the yuan to settle energy sales. If the Kingdom gives up the dollar, China can "persuade" other key exporters to trade oil for the yuan, Forbes said.

Simplifying the Simplifiable

In February 2023, Iranian President E. Raisi visited China. The Iranian delegation included the head of the Iranian Central Bank, M.-R. Farzin and six ministers, including Iran's oil minister D. Ouji. The main goal of the visit, which was given the highest protocol status of state, was the concretization of the 25-year agreement on a comprehensive strategic partnership, signed in March 2021.

The text of the agreement has not been published. The New York Times wrote that its main subject was China's purchases of Iranian oil at preferential prices in exchange for investments totaling up to $400 billion. Xi Jinping confirmed the readiness of the PRC to support companies that will invest in Iran.

The main direction of investment is the oil and gas sector. It was assumed that China and Iran would simplify settlements for the supplied oil and abandon the dollar. Other prerequisites for the transition in the oil and gas calculations of China and the main suppliers to the yuan are in the process of formation. In particular, through the mediation of Beijing, Saudi Arabia and Iran are restoring relations.

American "self-arrows"

Vladimir Putin stressed that the United States "shoots itself in the foot," limiting the framework for using the dollar, that Russia's partners are happy to agree on settlements in yuan. "Do you know that the oil-producing countries of the Middle East said that they also want to make calculations in yuan? We will gradually expand this, expand [the use of] those currencies that are reliable, "said the President of the Russian Federation.

Photo: https://www.statista.com/statistics/1310953/oil-imports-by-country-china/

At the end of 2022, Saudi Arabia was the leader in oil supplies to China, which sold 87.48 million tons for $64.97 billion (the physical volume practically did not change compared to 2021, the cost increased by 47.8%).

Following Russia in terms of supplies were Iraq (55.48 million tons for $39.09 billion), the UAE (42.77 million tons for $32.24 billion) and Oman (39.37 million tons for $29.15 billion). According to Chinese customs, in 2021, imports of Russian oil decreased by 4.5% and amounted to 79.64 million tons. The cost of purchased raw materials increased by about 45%, to $40.55 billion.

In 2021, China imported 513 million tons of oil from all sources. According to the General Customs Administration of the PRC, crude oil imports decreased by 0.9% to 508.28 million tons (10.17 million barrels per day) in 2022. China accounts for more than 17% of all world oil imports, the EU's share is 27%, the United States - 16%, the US allies, which are not part of the EU, occupy a quarter of the volume.

In 2020, China paid about $178.5 billion for oil imports, a 26% decrease compared to 2019. In January-November 2022, imports of 460.26 million tons of oil cost $334.6 billion, or 44.6% more than in the same period in 2021.

Currency is converted into a "reserve"

It was believed that the refusal of Saudi Arabia from petrodollar will not have a significant impact on world trade or oil prices until the regulator guarantees the stability of the yuan. The process of weakening the dollar and increasing the weight of the yuan in a basket of reserve currencies will be prolonged, as is expected for shifts in large systems, of which China itself and its BRICS partners are part. The impetus for the abandonment of petrodollar may be failures in the financial system of the West, affecting the estimates of the stability of the dollar.

The expansion of cooperation between the PRC and the Russian Federation and other oil-producing countries and states importing crude oil will allow the yuan to take the place of a full-fledged world reserve currency and take a leading position in this area in the BRICS group, which will be replenished. Algeria, Argentina and Iran have already applied to join. Saudi Arabia, Turkey and Egypt would like membership in this group.

Vladimir Putin noted that the dollar today has certain advantages, while other currencies have restrictions.

"But each country is interested in strengthening its national currency, and all countries will strive for this," the head of state summed up.

The formation of the BRICS Development Bank and the Asian Infrastructure Investment Bank, as well as the increased use of national currencies, will help in regional energy trade without using the dollar. Moscow and Beijing are already said to be working to create an international reserve currency and an integrated interbank settlement system based on a commodity basket of BRICS currencies to counter Western financial sanctions.

Xi Jinping invited Mikhail Mishustin "as soon as possible" to come to Beijing for negotiations. The parties are ready to increase the level of financial cooperation (including through trade in national currencies and the exchange of experience in the field of payments), according to a joint statement on the development plan for key areas of economic cooperation between Russia and China until 2030.

Photo: RBC