Russia and China inflicted a destructive blow to the dollar by signing an intergovernmental agreement on payment exchanges in national currencies. Further measures, such as payment mechanisms outside the SWIFT system and standardised exchange rates, will follow in the frame of a “de-dollarisation” process initiated in 2018.
The affirmation that the agreement between Russia and China inflicted a “destructive blow” to the dollar is part of a narrative related to the power of the dollar in international affairs, which is a critical matter for Russia due to the burden of sanctions.
This is also coincidental with comments by President Vladimir Putin on the need to rethink the role of the dollar in global trade. Russia is trying to reduce its share of dollars as currency reserves, trading them for euros, yuan, yen and gold. However, the US dollar share of global currency reserves is still above 61 per cent, while the euro is over 20 per cent. In comparison, the Chinese yuan, while rising, does not reach 2 per cent, and the Russian rouble is not considered as a reserve currency due to its volatility.
Three quarters of Russia’s international trade is performed in dollars. Almost 90 per cent of Russia-China trade is currently paid in dollars. Previous initiatives by China and Russia to integrate local currencies in their respective payment systems have failed. So, calling this agreement a “destructive blow to the dollar” is a distortion of facts.