China, Russia move away from the U.S. dollar in mutual trade
By Julia Chapman
For the first time this year, less than 50 percent of the trade between China and Russia was denominated in the U.S. dollar.
According to the Central Bank of Russia, in the first quarter of 2020, only 46 percent of the goods bought and sold by Russia and China used the dollar.
It's part of Beijing and Moscow's plan to become less dependent on the U.S. currency.
Chinese President Xi Jinping and his Russian counterpart Vladimir Putin set the goal in 2019 and quickly started implementing it.
The aim was underscored by both President Vladimir Putin and Foreign Minister Sergei Lavrov this month when Russia hosted the Shanghai Cooperation Organization's foreign ministers meeting.
"A plan is being prepared to fulfill the development strategy of the Shanghai Cooperation Organisation by 2025," said Lavrov. "As part of that, there are concrete steps in the spheres of politics, security and humanitarian links. Important documents are being prepared in the sphere of economic cooperation and also a roadmap for the gradual move towards mutual trade in national currencies."
All dollar transactions move through the U.S. banking system, which can create problems for companies under U.S. sanctions.
Russian companies have been hit with sanctions since the 2014 annexation of Crimea.
And as tensions continue to build between China and the United States, lowering dependence on the U.S. currency serves to benefit China as much as Russia.
But the greenback has dominated world trade for decades because it is one of the most stable currencies available.
The euro accounts for the second-largest volume of trade between Russia and China, with the Russian ruble and the Chinese yuan behind it.
But the ruble and the yuan fluctuate in value much more dramatically than the dollar and the euro.
Evgeniy Vinokurov is the Chief Economist for the Eurasian Stability Fund at the Eurasian Development Bank in Moscow.
"This story has political grounds, because in general, so far, trade in U.S. dollars is trade with the least losses," said Vinokurov. "Trading in rubles, yuan, the euro incurs certain increased costs, but the countries are doing this to avoid system risks arising."
Another goal set by China and Russia is to reach 200 billion U.S. dollars in annual bilateral trade by 2024.
That project has been dented by the COVID-19 pandemic, with trade falling in the first half of this year.
Experts say while the goal is unlikely to be reached, it's not unattainable.
But whenever it is met, the goods will mostly be denominated in currencies other than the U.S. dollar.