Tai Hui

Macroscope | Why China’s goal of ending US dollar dominance is still decades away

Recent efforts with Saudi Arabia and Brazil to promote use of local currencies are indicative of China’s goal of ending US dollar dominance, but the structure of global trade and financial transactions mean achieving that goal could still be well down the road

Reading Time:3 minutes

Why you can trust SCMP

China’s push to use the yuan to buy oil from Saudi Arabia is an example of recent efforts among emerging economies to find alternatives to using the US dollar in global transactions. Photo: Bloomberg

Tai Hui

Published: 9:30pm, 21 Apr 2023

The sustainability of the US dollar’s dominance in global trade and finance is not a new question. Recent comments and actions by senior leaders in emerging markets are bringing this debate to the fore once again.

While the level of intent and official support could move the dial more than before, the structure of trade and financial transactions means this transition towards a more multilateral currency regime could still be decades away.

There is a greater desire for emerging economies to trade among themselves in local currencies instead of using the US dollar. In December 2022, Saudi Arabia said it would consider accepting the yuan for oil sales to China.

China and Brazil announced in late March they would conduct trade in their own currencies. This was reiterated during Brazilian President Lula da Silva’s recent state visit to Beijing. China is Brazil’s largest trade partner, with more than US$150 billion in bilateral trade.

Not only are China’s trade partners advocating a greater use of their own currencies in trade, the Association of Southeast Asian Nations is setting up a task force to shift from international currencies, mainly the US dollar. The objective of this task force appears to be to reduce exposure to the US dollar, US banks and the US payment system.

The rising geopolitical tensions between the United States and China would push the Chinese authorities to promote the use of their own currency in trade and financial transactions. China has been seeking the internationalisation of the yuan since the late 2000s.