China's yuan currency is slowly but surely being adopted for more international payments, which analysts say could lay foundations for a trade system running parallel to the dominant U.S. dollar.
True global yuan adoption is unlikely, given expectations that Beijing will want to keep a tight grip on the currency. But incremental progress is already fashioning a new trade architecture and is gaining pace, particularly as Russia's expulsion from much of the West's payment systems has accelerated the development of alternatives.
China has long sought to increase the yuan's undersized 2.2% share of global payments, but seemingly without being willing to open its capital accounts and allow the sort of free-flowing movement that makes dollars, euros and yen so convenient.Suddenly "It will not replace the U.S. dollar globally, but it is already starting to replace the dollar in some of China’s trade relationships," said Gerard DiPippo and Andrea Leonard Palazzi, economists at Washington's Center for Strategic and International Studies, in an"This kind of renminbi internationalisation may achieve Beijing's goals, including reducing China’s exposure to exchange rate fluctuations and mitigating China’s vulnerabilities to U.S. financial sanctions.
China itself needs time to create depth in a limited pool of yuan outside its shores, which is less easy for Beijing to control. Yet the yuan offers other attractions to China's trading partners. In Argentina's case, buying goods in yuan saves draining dwindling dollar reserves. More broadly, each new adopter adds to a currency system's depth and usefulness.
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