Daniel McDowell, professor of political science and Maxwell Advisory Board Professor of International Affairs, spoke with The Diplomat about how U.S. sanctions against Russia are contributing to the cross-border use of China’s currency, the renminbi. Following is an excerpt:

First, by growing the use of the RMB in cross-border trade settlement directly between China and Russia. U.S. financial sanctions cut targeted actors off from using the dollar system, which forces targets into alternative currencies that are exchanged outside of the U.S. financial system. Beijing and Moscow were already working on de-dollarizing their bilateral trade prior to the war in Ukraine following years of escalating U.S. sanctions, but the process has sped up since February 2022. According to statements from Russian elites, more than 90 percent of trade between neighboring powers is now settled in “local currencies”—meaning the ruble or the RMB. The bulk of this is in RMB. 

The second way that sanctions against Russia have increased the RMB’s cross-border use is by fueling fears within China’s leadership that Washington will one day use similar measures against Beijing. This has helped to propel forward moves to internationalize “the people’s currency” beyond Sino-Russian trade. Growth in the RMB’s cross-border use reflects more than trade with Russia. China is also succeeding in transitioning away from settlement in dollars into RMB with other economic partners, predominantly in Asia. 

Read the full article at the link above.