After Russia\u2019s invasion of Ukraine, one of the most powerful tools for inflicting economic harm on Moscow was to essentially cut the country off from transactions based on US dollars, limiting its ability to trade with other countries.Quick Guide<\/strong><\/p>\n\n\n\n But as well as punishing the Kremlin, there has been an unintended winner from west\u2019s sanctions regime: the Chinese yuan. Last year the share of Russian imports paid for in yuan rose from 4% to 23%. In February the yuan overtook the dollar as the most traded currency on the Moscow exchange for the first time in its history.<\/p>\n\n\n\n China\u2019s push to boost the internationalisation of its currency predates the war in Ukraine and although the yuan is still far behind the dollar in terms of global activity, between March 2021 and March 2023 its share of the trade finance market \u2013 the multi-trillion dollar ecosystem that underpins 80% of world trade \u2013 more than doubled, according to data from Swift, an interbank messaging platform.<\/p>\n\n\n\n China is also encouraging other countries to adopt the yuan for international transactions. Argentina and Brazil recently reached agreements to pay for Chinese imports in yuan rather than US dollars.<\/p>\n\n\n\n In April Bangladesh announced that it had approved a payment in yuan worth $318m to settle part of a Russian loan that had been used to finance a nuclear power plant development. It is a rare example of the yuan being used for an international transaction that does not involve China.<\/p>\n\n\n\n Daniel McDowell, a China fellow at The Wilson Center, a thinktank, said: \u201cTo date, international use of the RMB as a payment currency has primarily involved China on one end of the deal.\u201d<\/p>\n\n\n\n \u201cTo do business with Russia, foreign partners do not really have alternatives \u2013 they will have to consider using less traditional payment currencies, like RMB and rubles\u201d.<\/p>\n\n\n\n China\u2019s economy is far more intertwined with the west\u2019s than Russia\u2019s is, and many analysts think it would be impossible for the west to punish China economically without inflicting massive self-harm.<\/p>\n\n\n\n Still, China wants to protect itself as much as possible, and the internationalisation of the yuan is one part of that defence.<\/p>\n\n\n\n In March, a Chinese company used yuan to buy 65,000 tons of liquefied natural gas (LNG) from TotalEnergies, a French multinational, the first time that China\u2019s currency has been used in an international LNG transaction.<\/p>\n\n\n\n Beijing does not want to be dependent on the use of dollars for essential imports, so this is a key step in ensuring China\u2019s energy security. In an article published last year, Xu Jin, the chief economist at China Energy, a state-owned company, wrote<\/a> that China \u201cmust work faster to drive the internationalisation of the RMB\u201d in order to protect its energy supplies in the wake of sanctions on Russia.<\/p>\n\n\n\n China has also developed an alternative to Swift as well as a digital currency, the e-CNY. These technological innovations are less important than the political factors that influence the yuan\u2019s international popularity, but they are part of Beijing\u2019s broad campaign to transform its currency into an attractive alternative to the dollar.<\/p>\n\n\n\nChina\u2019s war chest<\/h4>\n\n\n\n
A defence against sanctions<\/strong><\/h2>\n\n\n\n
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