“No longer giving a preponderant role to the dollar does not necessarily mean favoring the Chinese renminbi”

Ihen the United States and its allies banned Western financial institutions from working with their Russian counterparts, commentators predicted that some countries might limit their reliance on the dollar and the banking and financial messaging network Swift (acronym for Society for Worldwide Interbank Financial Telecommunications). And that China would be the main beneficiary.

It has a sizeable banking system, an alternative cross-border interbank payment system to the Fedwire electronic service and the Chips system, which operate in dollars. Russia already accepts the Chinese renminbi for at least 14% of its exports. Its sovereign wealth fund holds 45 billion dollars (42 billion euros) of securities and deposits in renminbi. Russian companies issued in 2022 the equivalent of 7 billion dollars of bonds denominated in renminbi. China has recently concluded clearing agreements in its currency with Pakistan, Argentina and Brazil. The Iraqi central bank announced on February 22 that it would allow direct settlements in renminbi for trade with China.

However, no change of magnitude appears yet in the figures. According to the International Monetary Fund, the renminbi’s share remains below 3% of total reported global foreign exchange reserves, and below 2% of cross-border interbank payment instructions in Swift.

Admittedly, not all countries disclose the composition of their foreign exchange reserves, and the countries most worried about sanctions are the least likely to do so. And instead of using Swift, banks in these countries are more often using email, phone or fax for their cross-border financial transfers.

More accessible currencies

But apart from special cases like Russia, China’s financial attractiveness could remain limited, especially since Washington suspects Beijing of supplying war material to Moscow, which could pave the way for sanctions against China. In this case, there will be little or no opportunity to conduct cross-border transactions through Chinese banks. The Chinese government has also distinguished itself by repeatedly changing its attitude towards the private sector. It cannot be ruled out that it unilaterally modifies the access conditions of foreign banks which hold assets on the Shanghai Stock Exchange or which use the CIPS.

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