Reassessment of US Dollar’s Preeminence: EBRD’s Leading Economist Signals Russia’s Pivot to the Chinese Yuan

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In a recent discussion, Beata Javorcik, the principal economist at the European Bank for Reconstruction and Development (EBRD), spotlighted a significant development: Russia’s escalating tendency to engage in trade using the Chinese yuan. Javorcik emphasized that this trend could serve to undermine the prevailing dominance of the U.S. dollar in international finance. “The rise in the Chinese yuan’s use is taking place at the expense of the U.S. dollar,” Javorcik stated in an interview last Wednesday.

EBRD Analysis Underscores Russia’s Move Towards Chinese Yuan

In her role as the EBRD’s foremost economist, Beata Javorcik focused on Russia’s burgeoning affinity for the Chinese yuan in commercial transactions. Her comments are particularly relevant at a time when the U.S. dollar’s share in global reserves has dipped below 60%. Simultaneously, Russia, along with various other BRICS nations, are increasingly sidestepping the use of the U.S. dollar in international trade.

Javorcik, in her conversation with Bloomberg on Wednesday, elaborated that the imposition of sanctions has “prompted nations to contemplate diversifying their transaction currencies, a development that could, in the long run, diminish the dollar’s overarching role.”

The economist recently contributed to a research paper outlining the expanding tendency of countries to adopt the Chinese yuan and to establish swap arrangements and trade agreements with China’s central bank. Imports from Russia to China have surged recently, setting new records. Javorcik clarified that although new swap agreements with China’s central bank are appearing, many had already been established prior to the recent tensions between Ukraine and Russia.

“Most of these swap lines were instituted before the onset of the conflict,” said Javorcik. “The hostilities have catalyzed the use of the Chinese yuan as a currency option,” she continued.

However, not all experts concur with Javorcik’s analysis. Benn Steil, an economist and the director of International Economics at the Council on Foreign Relations, argued as recently as August that the yuan “poses no immediate challenge to the dollar’s hegemony.” In contrast, in September, Alexander Wise, a strategic analyst at JPMorgan, flagged potential risks to the U.S. dollar, delineating two particular scenarios in an internal report.

Jahangir Aziz, another economist at JPMorgan, noted in the same study that the “significance of the dollar has noticeably waned from 2014 to 2022.” In a report co-authored by Javorcik and EBRD economist Maxim Chupilkin, it was argued that while the preeminence of the U.S. dollar bolsters the efficacy of sanctions against Russia, it is not without its drawbacks.

“The supremacy of the U.S. dollar enhances the effectiveness of international sanctions since global firms generally necessitate payments to be processed through the American banking system,” the authors elucidated. “However, the deployment of economic sanctions could gradually erode the allure of the U.S. dollar as a primary transactional currency, thereby undermining its dominant position.”

We welcome your insights and perspectives on the EBRD economists’ views regarding the dwindling appeal of the U.S. dollar in international trade. Please contribute your thoughts on this subject in the comments section below.

Frequently Asked Questions (FAQs) about U.S. dollar dominance

More about U.S. dollar dominance

• Beata Javorcik’s Interview with Bloomberg
• European Bank for Reconstruction and Development (EBRD)
• Council on Foreign Relations: Views of Benn Steil
• JPMorgan Strategic Analysis Report on U.S. Dollar
• Recent Trends in Global Reserves
• BRICS Nations and Currency Choices
• Economic Sanctions and Their Impact on Currency Dominance
• Russia-China Trade Relations and Currency Swap Agreements