On Thursday, United States Treasury Secretary Janet Yellen warned Russia and China they will face substantial difficulties as they seek to replace the United States dollar in international trade.
As the US and EU attempt to levy sanctions against the Kremlin over the ongoing military conflict in Ukraine, Russia has been rapidly withdrawing from transactions in what it refers to as “unfriendly” currencies. As part of that initiative, the Kremlin has been transitioning away from the dollar, and towards using both the ruble and local currencies as it settles trade obligations with major partners such as India and China.
At a hearing before the US House of Representatives Appropriations Subcommittee, Janet Yellen said, “I certainly want to see the dollar remain as the world’s reserve currency, and there is a motivation that Russia and China have to try to develop another system that avoids the use of the dollar.” She went on to assert it will be “tremendously difficult” for the Kremlin and Beijing to accomplish that objective.
In 2014, the Western powers attempted to sanction Moscow over the Russian reunification with Crimea. Crimea had voted to secede from Ukraine and join Russia, following a color revolution which overthrew the elected government in Kiev.
In response to the sanctions, which were designed to hobble the Russian economy by denying it access to Western financial tools, Russia began to “de-dollarize” its economy. After the West froze another $330 billion in Russian foreign exchange reserves and other assets, Moscow accelerated the process of divorcing itself from the Western financial system.
As it has done so, the Chinese yuan has grown in prominence, now becoming a major player in Russian foreign trade, according to the latest data from the Bank of Russia. Between January of 2022, and the end of last year, its percentage of Russian import settlements rose from just 4% to 23%. Among export settlements, its share rose from 0.5% to 16%.
As it rose, the US dollar and the euro declined, from 65% in January of 2022, to 46% last December.
By February, for the first time, the yuan had overtaken the dollar to become the most traded currency on the Russian stock market, according to data from the Moscow Exchange.
