On June 8, 2020, China and Russia signed a currency agreement that allows them to increase the use of their own currencies in trade settlements, reducing their reliance on the U.S. dollar. This move is seen as a challenge to the dominance of the U.S. dollar as the global reserve currency.
The agreement, signed by People`s Bank of China Governor Yi Gang and his Russian counterpart Elvira Nabiullina, allows the two countries to use their national currencies in bilateral trade and investment. This means that Chinese and Russian companies will no longer need to convert their currencies into U.S. dollars when doing business with each other, reducing transaction costs and currency risks.
The agreement comes amid increasing tensions between the U.S. and China, particularly in the areas of trade and technology. The U.S. has accused China of unfair trade practices and intellectual property theft, while China has accused the U.S. of trying to contain its rise as a global power. The U.S. has also imposed sanctions on Russia over its annexation of Crimea in 2014 and alleged interference in the 2016 U.S. presidential election.
By using their own currencies in trade settlements, China and Russia are seeking to reduce their exposure to the U.S. dollar and the U.S. financial system. This move could also increase the use of the yuan and the ruble in international transactions, potentially challenging the dominance of the U.S. dollar as the global reserve currency.
However, the impact of the agreement on the global financial system remains to be seen. While some analysts see it as a step towards a more multipolar global currency system, others argue that the U.S. dollar`s dominance is unlikely to be challenged anytime soon, given its widespread use in global trade and finance.
In any case, the China-Russia currency agreement is a significant development in the ongoing shift in global economic power away from the West and towards Asia. As China and Russia continue to strengthen their economic ties, the use of their own currencies in trade settlements could become increasingly common, potentially changing the global financial landscape in the years to come.