Russia and China are building a “financial alliance” and look set to “ditch” the dollar, according to a report on the Nikkei Asian Review website.
The financial news website reports that the US dollar’s share of trade between Russia and China “fell below 50 percent for the first time on record” in the first quarter of 2020.
The source of the statistic is Russia’s Central Bank and Federal Customs Service, which published figures showing that a relatively low 46 percent of trade transactions between China and Russia were conducted or completed in US dollars.
Meanwhile, transactions using the euro are said to have reached “an all-time high” at 30 percent, and each country’s own currency – Russia’s rouble and China’s yuan – were used in 24 percent of settlements, which is also a new record.
Nikkei reports that as recently as 2015, 90 percent of Russia-China trade was conducted using the US dollar, but the US-China trade war prompted the two countries to change their approach and diversify.
Nikkei quotes Alexey Maslov, director of the Institute of Far Eastern Studies at the Russian Academy of Sciences, who says that Russia and China are engaging in a process of “de-dollarization” and there is “breakthrough moment” approaching, at which point there would be a “de facto alliance” between the countries.
Two relatively recent developments have led to this point. In 2014, Russia and China agreed a currency swap deal in which both countries would directly sell their currencies to each other outside of the global currency market system.
Then, in 2019, the leaders of the two countries – President Vladimir Putin of Russia and President Xi Jinping of China – agreed a number of trade deals including the replacement of the dollar for transactions between them, and pledged to develop an alternative to the US-led “Swift” international payment system.
While the reduced usage of the US dollar is no surprise to economists, analysts say that the dollar is still the strongest global currency.
As Nikkei reports, Jeffery Frankel, an economist at Harvard University, says no rival currency has shown itself capable of outperforming the dollar.