Following the closing of the first bilateral settlement in Chinese yuan prior to the visit of President Luis Inacio “Lula” da Silva to China; Brazil and China have achieved a major economic milestone as they move away from the US dollar. Analysts claim that the settlement, which was handled by the Industrial and Commercial Bank of China (ICBC), prepares the way for less expensive and straightforward transfers between the nations.
Discussions toward using the Chinese Yuan in trade
Brazil and China conducted their first bilateral settlement in the Chinese yuan, advancing their trade integration as they move away from the US dollar. The Industrial and Commercial Bank of China (ICBC), the bank chosen by the Chinese government to serve as a clearing institution for Brazilian businesses committed to utilizing the yuan for international settlements, handled the first transaction.
The adoption of the Chinese yuan in international settlements heralds the introduction of a new, more straightforward method for businesses to engage in trade transactions without the need for a third currency conversion component. China and Brazil signed a deal last month to settle bilateral transactions in their respective national currencies.
Brazilian President Calls for global disapproval of the US Dollar
Analysts anticipated additional announcements about integration, including the prospective inclusion of Brazil in China’s “Belt and Road” plan. And the deal took place before Brazilian President Luis Inacio “Lula” da Silva met with his Chinese counterpart, President Xi. According to Tang Jie, a Chinese expert of Latin American affairs, this would include investing more money into such systems to make them meaningful for larger businesses and settlements.
After Brazil and China move away from the US dollar, as part of his remarks after the appointment of former Brazilian President Dilma Rousseff as president of the New Development Bank in Shanghai, the so-called “BRICS bank,” “Lula,” has already demanded the abolition of the U.S. currency. Lula stated, “I ask myself every night why all countries have to base their trade on the dollar. Why can’t we trade using our own currencies? Who decided that the dollar would be the dominant currency after the gold standard disappeared?”
The background against which this joint de-dollarization rose
The key ascending geopolitical actors were increasingly making efforts to lessen their reliance on the U.S. dollar since the start of the Russo-Ukrainian war more than a year ago—and the subsequent, unprecedented sanctions that were imposed against Russia via the U.S.-dominated global banking system.
After February 24, 2022, the creation of an alternative global banking system, which Moscow started in 2014 after the West as a whole imposed sanctions against it due to the annexation of Crimea into the Russian Federation, accelerated and broadened in scope as other nations—including but not limited to China, India, and Brazil—took steps to move towards such a system.
The U.S. government’s capacity to weaponize the dollar against its political adversaries and those who reject its political agenda is almost certainly the main factor pushing nations to depart from the current global monetary system, which has been in place since the end of World War II.
Approximately 60% of the world’s foreign exchange reserves are still held in U.S. dollars, despite the de-dollarization trend.
The global economy may be significantly impacted if the US dollar is no longer used as a middleman in international trade. It might encourage other nations to follow suit and carry out their financial and trade activities in their own currencies, potentially eroding the dollar’s status as the main currency in the world. The success of the penalties served as a warning to all totalitarian countries. However, it was hardly a surprise to those who had previously suffered from having weak economies that were entirely dependent on the domineering US dollar.
Also Read: Nigerian Crypto startup Lazerpay shuts down failing to secure funding.
