The US dollar has recently been losing value against other currencies, dropping nearly 5% in July, its biggest monthly fall in more than 10 years. This decline is prompting economists worldwide to re-assess the role of the dollar as a global reserve currency, as some countries have resorted to other options in their bilateral transactions.
The US dollar’s share of trade between Russia and China fell to a record low of 46% in the first quarter of 2020, according to recent figures provided by Russia's Central Bank and Federal Customs Service. This data prompted experts to suggest that the two trading partners were now forging a “banking” or “financial” alliance, according to Russian-American political scientist Dimitri Simes, writing for the Nikkei Asian Review.
Simes cites comments from Alexey Maslov, a director of the Institute of Far Eastern Studies at the Russian Academy of Sciences, who argues that “the collaboration between Russia and China in the financial sphere tells us that they are finally finding the parameters for a new alliance with each other”.
"Many expected that this would be a military alliance or a trading alliance, but now the alliance is moving more in the banking and financial direction, and that is what can guarantee independence for both countries,” Maslov believes.
In the first three months of 2020, less than half of transactions between the two countries were made in dollars, while 30% of them were euro-denominated and the remaining 24% were conducted in the national currencies of the two nations. This marked an all-time high share for non-dollar currencies in China-Russia settlements, as trade between the two partners accounted for $49.15 billion in the first half of 2020. In comparison, in 2015 nearly 90% of all transactions between China and Russia were conducted in dollars.
The “dedollarisation” trend has been pursued by Moscow since as early as 2014, Simes notes, following a sanctions package imposed on Russia after the reunification referendum in Crimea. The US-China trade war that saw an imposition of tariffs on $34 billion worth of Chinese goods by the Trump administration in 2018, and on billions of dollars more in the time sense, only exacerbated this resolve, which is now strongly felt by Beijing as well.
In June 2019, Russian and Chinese officials signed an agreement to move away from the dollar in their bilateral transactions and switch to national currencies instead. The countries also pledged to find an alternative solution to the US-led SWIFT payment mechanism in bid to facilitate transitions directly in rubles and yuan.
Russia has been slowly ditching the dollar in its trade with other countries as well: since 2015, Moscow’s transactions with European Union have been mostly completed in euros, which accounted for 46% of all settlements in Q1 in 2020, with 18% of others being done in rubles.
Amid the global coronavirus pandemic and unprecedented cash-printing efforts by the US Federal Reserve, the dollar has recently been losing its value when measured against a basket of six major currencies, based on ICE’s Index.
In July, the dollar fell to 92.635, its lowest level since July 2018, losing approximately 5% throughout the whole month, which marked its biggest monthly plunge in over a decade. In the meantime, the price of gold has been rising to record high numbers, prompting experts to debate a possible re-evaluation of dollar’s status as a world’s reserve currency and suggest a move to other alternatives - with China’s yuan actually being one of them.