De-dollarization: 95% of the trade between China and Russia didn’t use the US dollar

Russia became China’s main trading partner, surpassing the goal of US$200 bi in transactions estimated for 2023

Translated by: Ana Paula Rocha

Brasil de Fato | Pequim (China) |
The trade between Russia and China broke the record of over US$200 bi, anticipating predictions for 2024. - Sergei Savostyanov/POOL-AFP

In a recent visit to China, Russian deputy prime minister Andrei Belusov stated that, in 2023, the use of the Russian ruble and China’s yuan in trade between the two countries reached 95%.

From January to October this year, 68% of Russian trade was made using the respective national currencies of the two countries, according to Russia’s Minister of Economic Development, Maksim Reshetnikov.

Russia has used the yuan in trade transactions with Mongolia, the Philippines, Malaysia, the United Arab Emirates, Thailand, Japan, Tajikistan and Singapore.

The debate about the need to de-dollarize Global South economies isn’t new, but 2023 will go down in history as the year in which this process accelerated.

History of sanctions

Russia has already faced more than 17,000 sanctions since the start of the so-called Special Military Operation in Ukraine's eastern region in February 2022, according to information recently released by Russian Foreign Minister Sergei Lavrov.

The Global North map is virtually that of the countries that sanction Russia: the United States, Canada, the United Kingdom, the European Union (and the candidates to join the bloc), Switzerland, South Korea, Australia and Japan, and some exceptions such as Singapore.

In this new wave, sanctions have reached historic levels. According to US President Joe Biden, they were designed to have a long-term impact on Russia and "surpass anything we've ever done."

The first wave of sanctions was imposed in 2014, following the crisis in Ukraine that led to a coup against President Viktor Yanukovych, and which had the involvement of the United States.

Measures against Russia began to be implemented when the country decided to reunify with Crimea, whose residents refused to recognize the new government that resulted from the coup.

"From 2014 to 2022, Russia simultaneously pursued de-dollarization and euroization. During this period, the European Union became Russia's main trading partner, leading to a shift in the main transaction currency, which changed from the US dollar to the euro," explained Xu Poling, the director of the Department of Russian Economy at the Chinese Academy of Social Sciences.

With the European Union intensifying sanctions in 2022, banning any transactions with the Russian Central Bank, as well as the sale, supply, transfer and export of euro-denominated banknotes to Russia, more than half of Russia's reserves have been captured, equating to around US$ 300 billion. The West even began to openly discuss the definitive theft of this amount.

In its 2022 report, the Russian Central Bank stated that "following the enactment of sanctions by hostile states, their currencies have become 'toxic' for Russian economic agents. An increase in agreements with friendly countries in national currencies became critical to guarantee and develop foreign trade,” the institution's report concluded.

According to Xu Poling, from 2022 until now, trade between Russia and Europe fell by 70%, while trade between Russia and Asia rose by 70%.

Currently, imports from Asia, particularly from continental China and Hong Kong, are 40% of all Russia’s imports. About 60% of the country’s sovereign wealth fund is in RMB (Renminbi, the official currency of China) assets, and 40% of its foreign exchange reserves are also in RMB assets.

Until September this year, Russian participation in imports from the EU fell to 2%, according to Eurostat, the bloc’s statistical service. In February 2022, the figure was almost five times bigger – 9.5%. 

The sanctions' boomerang effect

“The first time I heard a serious discussion on the need to de-dollarize [transactions], to place them at a high level of geopolitical importance, was in 2014. Some high-ranking personnel in China described de-dollarization as a geopolitical lesson of uttermost relevance, particularly because of Iran,” says Zhang Xin, the vice director of the Russian Studies Center of East China Normal University.

After the Russia-targeted sanctions, says Xin, many developing countries got worried about their assets and financial stability falling prey to the excessive use of the dollar as a geopolitical financial weapon.

At the end of last year, the Organization of Petroleum Exporting Countries (OPEC), led by Saudi Arabia, decided to make the biggest cut in supply since 2020: around 2 million barrels. The Biden administration threatened Saudi Arabia over the decision, saying there would be "consequences" for the country.

In August this year, India used its national currency - the rupee – for the first time in history to purchase 1 million barrels of oil from the United Arab Emirates. Both the Saudis and Emiratis will be part of BRICS+ in January 2024.

In November, the European Commission presented the 12th package of sanctions against Russia and hopes its members will approve it in December. 

The Russian agency Ria Novosti, with data from Eurostat, recently showed that from February 2022 until September this year, the European Union started paying, on average, two times more compared to the price they previously paid for US liquefied natural gas.

Estimates say the bloc paid over 52 billion euros more for fuel compared to the price the US charged in 2021.

China-Russia trade record in 2023

China-Russia trade has just broken a record of over US$ 200 billion, reaching the goal set to be reached in 2024.

The figure from January to November this year was more than US$ 218 billion, representing an increase of 26.7% compared to the same period in 2022. The annual result will probably surpass the US$ 220 billion goal Russia estimated a few months ago.

Growth in the bilateral trade relationship changed the composition of transactions, with Chinese companies occupying the space left by European and Japanese companies.

For Zhan Xin, it is important to highlight not only the total amount but also the content and structure of trade. "If you look at the segregated trade data, China is exporting more and more hardware equipment, electronics, machinery and heavy trucks, as well as automobiles to Russia. That is something that has never been part of the historical trade partnership between the two countries,” he explains.

Economist Xu Poling considers that this artificial restructuring of global industrial and supply chains causes significant costs, and that the recovery process could take a long time, at least five years, and potentially up to ten years.

"During this period, most countries may struggle to achieve growth and instead [will have to] bear the costs of rebuilding secure industrial chains. I think this entire process is regrettable for all countries involved," said Poling.

BRICS evolution may favor de-dollarization 

During his visit to China in April this year and at the XV BRICS Summit in August in South Africa, President Lula advocated for a payment system based on local currencies, without the US dollar.

At the next BRICS Summit, which may take place in October 2024 in Kazan, under Russia's presidency, the ministers of economy and presidents of central banks will present reports about the viability of the initiative. 

“The combination of large industrial economies, particularly China, a sector of the main energy-rich countries and the most important developing countries can change the dynamics that have been the economic and political basis of the power of the US dollar – the so-called “petrodollar” – since 1970," says Zhang Xin.

At the BRICS Summit held in Johannesburg, the Russian president was the only leader to use the word “de-dollarization”. “A balanced and irreversible process of de-dollarization of our economic ties becomes stronger with efforts undertaken to develop efficient mechanisms for mutual payments, as well as monetary and financial control,” said Vladimir Putin.

Poling thinks that de-dollarization will not be completed quickly. "On the one hand, new options must emerge and, on the other hand, the fact that the US can close deals with other countries, providing more facilities and guarantees, will also have an impact on the de-dollarization process."

However, the expert says due to the politicization of the US dollar and its use as a weapon, the de-dollarization process is an inevitable move.


Edited by: Rodrigo Gomes