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The Renminbi's Ascant Journey
The US dollar, long the global currency for trade and foreign exchange reserves, remns dominant. However, underpinned by escalating geopolitical tensions and a growing tr of trade fragmentation, China's renminbi is experiencing a gradual yet persistent rise. In an era marked by the bifurcation of economic worlds moving apart, currencies are whispering tales that echo this divergence.
Chuin Wei Yap explores how global geopolitics and rising trade and foreign direct investment polarizations are reshaping cross-border payment practices and reserve currency allocations.
Dollar's preeminence is solidly anchored in its role as the primary medium for trade finance and forex reserves. It accounts for an overwhelming 89 of trade finance transactions denominated in a particular currency, up from 87 in 2013, according to data compiled by Visual Capitalist and The Hinrich Foundation, based on analysis by the Bank for International Settlements BIS. Notably, most commodity trade still relies on dollar-based invoicing and settlement.
The US dollar also holds sway as nearly 60 of foreign exchange reserves. Yet, this reliance has seen a gradual diversification into alternative reserve currencies like the Australian dollar and Canadian dollar, according to an International Monetary Fund IMF report from May 2024.
Navigating the complexities of currency usage in global trade and finance is challenging, with data avlability lagging behind real-time trs. This can sometimes lead to inaccuracies when interpreting the evolving dynamics.
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In an escalating global rift, those leaning towards the US may observe little change in their day-to-day operations involving dollar-based transactions. However, for countries aligning with China's economic aga, these shifts are more palpable.
Visual Capitalist highlights that for the first time ever, China's renminbi yuan surpassed the dollar as the country's most used currency in cross-border payments and receipts at the of March 2023. The yuan accounted for 53 of all transactions, with the US dollar holding onto a share of 43, down from its peak of 83 in 2010.
Moreover, the dollar's dominance is undergoing scrutiny as the ongoing conflict in Ukrne rses questions about its future as the global reserve currency. This scenario underscores how geopolitical events can challenge existing economic dynamics and reshape global trade landscapes.
Understanding these trs requires a nuanced approach that combines indepent research with an objective analysis of facts and data. As economies evolve, the role and relevance of currencies change, shaping new pathways for international commerce.
Stay tuned for our next installment in this series as we explore how the digital revolution is transforming global trade dynamics.
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