Chinese banks are increasing their efforts to encourage international yuan usage, and they are reporting an increase in cross-border yuan activity as a result of the country’s brisk trade with Russia and developing links with the Middle East.
Harbin Bank Co, in China’s Heilongjiang province, which borders Russia, saw its cross-border yuan commerce more than triple to a record last year, as Sino-Russia trade expanded rapidly after the Ukraine crisis began.
China Construction Bank and Agricultural Bank of China (AgBank) reported total assets at their Moscow subsidiaries jumped 3.3 times and 1.4 times, respectively, in 2022, while Russia was put under harsh western sanctions.
Admittedly the growth came off a low base, but these small steps in yuan adoption come after a string of bilateral deals by China with its trade partners, such as its oil purchases from the Gulf and other trade with Brazil and Russia.
The yuan’s share of global payments is merely 2.5%, and tiny compared with U.S. dollar’s 39.4% and euro’s 35.8%, according to SWIFT, the global payment messaging system controlled by the West.
But Reuters analysis of banks’ latest filings shows how the one-year-old Ukraine war that led to Russia being kicked out of the dollar system, is revving up China’s efforts to extend the plumbing for an alternative currency system.
“China should prepare for the worst-case scenario of being excluded from SWIFT, and actively promote cross-border use of the yuan,” Wang Jiehua and Qiao Liqun, executives at Harbin Bank, wrote recently in a publication affiliated to China’s central bank.
China should use the opportunities brought about by western sanctions against Moscow to expand trade with Russia, and make Heilongjiang a beachhead for yuan internationalization, they wrote.
In Inner Mongolia, also neighbouring Russia, Bank of Inner Mongolia has been actively engaged in yuan settlements and trade financing businesses with its Russian peers, facilitating bilateral trades, official Xinhua news agency reported in March.