The internationalization of the yuan is gaining traction as a result of the ongoing de-dollarization wave that is pushing many countries to look for alternatives to the dollar in an effort to lessen their reliance on the US.
This assertion is a response to Bangladesh’s decision to authorize the use of the Yuan to pay a Russian nuclear power developer $318 million. This is the most recent instance of a country choosing to use the Chinese currency instead of the US dollar in international payments, which analysts said may hasten the global trend of de-dollarization.
The decision to use yuan was reportedly decided at a meeting of the Bangladesh Finance Ministry’s economic relations division on Thursday, according to Uttam Kumar Karmaker, head of the ministry’s European affairs branch. The same article has noted that even though the decision has been made official, the transaction has not yet been finished since payment issues have not been handled.
The Nuclear Power Plant
Bangladesh plans to construct the first of two nuclear power plants thanks to its partnership with Rosatom, the state-owned nuclear business of Russia. The estimated value of the aforementioned collaboration is $12.65 billion, 90% of which is funded by a Russian loan with a 28-year repayment term and a 10-year grace period. It is important to remember that US sanctions last year prevented earlier attempts to resolve the issue of payments between the two nations.
According to Cao Yuanzheng, chief economist at Bank of China International, Bangladesh’s choice is a step forward for the Chinese currency’s ability to participate more in international payments for a significant infrastructure project without China’s involvement.
Bangladesh will use its own yuan reserves to settle outstanding debts as a result of the aforementioned decision. A report claims that China’s Cross-Border Interbank Payment System, a yuan-driven alternative to the SWIFT system, will be used by Russia to accept payment.
The decision reached jointly by Bangladesh and Russia, according to Cao, “indicates that the yuan is being used more broadly in the international market and that it is a reasonable arrangement for the non-convertible currency.”
China and Yuan’s Global Performance
The Everbright Bank analyst Zhou Maohua said that China’s economic strength, which is renowned as the world’s second-largest economy offers significant assurance and confidence despite global uncertainties and a difficult environment, is inextricably linked to the yuan’s recent gains.
China’s GDP increased by 4.5 percent year-over-year in the first quarter, according to figures released by the National Bureau of Statistics last Tuesday; this result significantly outperformed market estimates.
However, it was noted that the yuan has maintained its ranking as the fifth most active currency for international transfers. While its global share increased from 1.91 percent in January to 2.19 percent in February.