The yuan is increasing in use internationally as China's economy grows, but the dollar still dominates global trade and finance. Some countries are trying to reduce dollar dependence by using the yuan more, such as in Latin America due to trade links with China. For the yuan to become a leading currency, China needs reforms like free capital movement. Institutions like the AIIB and lending in local currencies indicate the yuan's role will likely continue expanding.

1. 1
Internationalization of the yuan and Latin America
Carlos Aquino Rodriguezi
The world is experiencing a shift in the centre of economic and political
power in the last decades, from the West to the East, from the Northern
part of the hemisphere to the Southern part. The role of developing and
emerging economies is increasing with time. This can be seen in the
growing weight of those emerging and developing economies in indicators
such as Gross Domestic Product (GDP), trade, investment.
But one area where still the role of western developed countries is still
big, despite its diminishing importance in the indicators mentioned above,
it is in the field as the most used international currencies, in international
finance and trade. In these field the United States (U.S.) dollar is the most
widely used. The dollar accounts for more than half of international
reserves, trade transactions, and international lending. This despite the
U.S. representing less than 25% of global Gross Domestic Product (GDP)
and no more than 12% of global trade.
But in the last years other currencies, little by little, are increasing their
importance in the international financial markets and global trade. One of
them and the one that have more possibilities to compete with the dollar,
is the Chinese renminbi (or yuan).
In this article it will be seen how that process is happening, first by
describing the present situation of the dollar and other currencies use in
trade and international finance; second it will be analysed which
conditions will be needed for the yuan to become a widely used
international currency; third, it will be seen how that process in happening
in Latin America, a region with increasing trade and financial links to
China; and last, some Conclusions will be given.
I. Present situation of the dollar and other currencies use in trade
and international finance.
After the Second World War, as the United States become not only the
biggest economy in the world but also the most powerful in military and
political terms, the use of its currency, the dollar, become predominant.
But after the many changes in the world economy, with the increasing
importance of the developing and emerging economies, in particular

2. 2
those in East Asia, like China, and the decrease in importance of U.S. in the
world economy and world trade, the use of the dollar has been
decreasing, for example, in the last 20 years.
As seen in Graph 1, in the year 2000, dollar accounted for around 70% of
international reserves, but in 2022 its share has diminished to around
59%.
Graph 1: Share of the dollar in international reserves compared to other currencies.
Source: GZERO https://www.gzeromedia.com/by-ian-bremmer/the-dollar-is-dead-long-live-the-dollar
In the following Table it can be seen that, at the first quarter of the year
2023, of the total of allocated reserves, 59.01% are claims in US dollars,
and in second place is the euro with 19.77% of the total. After that is
Japanese yen and pound sterling. In fifth place are claims in Chinese
renminbi (or yuan) with 2.58% of the total.
Table 1. World official foreign exchange reserves by currencies (in billion US dollars)
Source: IMF: https://data.imf.org/?sk=e6a5f467-c14b-4aa8-9f6d-5a09ec4e62a4

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In the last years also, some economies are diminishing their holdings of
United States Treasury Securities. For example, China Treasury holdings
peaked at over 1.3 trillion dollars in fall 2013, when it was the largest, but
after that, it has been decreasingii
. In June 2022, China holdings were 939
billion dollars, but in June 2023 it was 835 billion dollars. See Table 2.
Table 2: Major Foreign Holders of Treasury Securities
Source: U.S. Department of the Treasury https://ticdata.treasury.gov/resource-center/data-chart-
center/tic/Documents/slt_table5.txt
The use of the dollar as a “weapon” by U.S. in the last years is also pushing
many countries to use other currencies. U.S. has implemented economic
sanctions against many countries, beginning with, Cuba, North Korea, Iran,
and Venezuela. The last country to be affected by economic sanctions is
the Russian Federation because of the war in Ukraine. U.S. implemented
measures to cut Russia off from access to dollars. Russian central bank
was denied access to most of its international reserves held in major world
currencies at western central and commercial banks.

4. 4
Also, in other fields the use of the dollar is still predominant. In trade
invoicing for example it is 50% of the total. In cross-border loans is 50% of
the total, and in foreign exchange transaction volume its use accounts for
88% of the total. See Graph 2.
Graph 2. International use of the dollar
Source: GZERO https://www.gzeromedia.com/by-ian-bremmer/the-dollar-is-dead-long-live-the-dollar
But in the last years the use of the dollar in global trade is being shunned
by some countries. The clearer case is for example Russia, especially in its
trade with China. As can be seen in Graph 3, ten years ago, in 2013,
Russian exports to China were settled more than 95% in dollars, but by
2020 the use of the dollar has decreased to only 22.7%. And that was
before the war in Ukraine and the economic sanctions imposed on Russia
by the U.S.
Graph 3. Use of dollars in Russia export to China

5. 5
Source: Atlantic Council https://www.atlanticcouncil.org/blogs/econographics/russia-and-china-
partners-in-dedollarization/
Now, according to a statement given by President Vladimir Putin in the St.
Petersburg International Economic Forum last June, over 80% of trade
settlements between Russia and China are conducted in Russian ruble and
Chinese yuaniii
. As it will be seen bellow, in the case of Latin America,
other countries are also trying not to use dollars in their trade transactions
and in investment projects, instead using yuan. This means the
internationalization of the yuan is advancing and more countries are
involved in the process.
II. Which conditions will be needed for the yuan to become a truly
international currency?
China is now the second biggest world economy, with around 18% of the
totaliv
. It is the largest global trader, with a share of 13% of the totalv
. It is
the third largest investor in the world (in the year 2022, but it was the
second largest in 2021)vi
.
But still the use of the yuan as an international currency is minor, despite
its weight in the world economy. What would be needed for China´s
currency to increase its presence in world trade and finance?
For this perhaps it is useful to see why the dollar is widely used. Among
other reasons for that are:
1. There are no capital controls for the inflow or outflow of dollars in
U.S. This free movement of capital is one of the most appealing
features for foreigners to hold dollars, either in U.S. or abroad.
2. The exchange rate of the dollar is freely determined by the market.
3. U.S. financial market offer an abundance of dollar-denominated
assets that foreign investors can freely trade.
4. Also, it is said that U.S. offer stable government institutions,
independent central bank, strong property rights, and a robust rule
of law.
To the above it should be added that U.S. was also able to push for the
wider use of the dollar through its dominance of international financial
institutions like the World Bank and the International Monetary Fund.
Then, China must work for a freer movement of its capital. Its currency
should be freely tradable (convertible), and the yuan exchange rate should

6. 6
be determined totally free of any interference. Besides this, Chinese
monetary policy should be more transparent and stable. Its capital market
should offer more attractive instruments for foreigners to invest in yuan,
with little restrictions. All these measures should be done gradually
considering the interest of the national economy and to avoid speculative
movements of capital that could destabilize the country.
China is also working to increase its presence in the international financial
market by way of the establishment, with other countries, of institutions
like the Asia Investment and Infrastructure Bank, AIIB, and the New
Development Bank or BRICS Bank. Dilma Rousseff, the head of the New
Development Bank recently said that the Bank is planning to lend in
Brazilian and South African currencies to reduce reliance on the dollarvii
.
III. How is the internationalization of the yuan happening in Latin
America?
For Latin American countries, that have increasing economic links with
China, it would be natural to settle their economic transactions not in
dollars but in yuan. But even if still the use of the Chinese currency in the
region is minor, compared to the dollarviii
, some countries are moving to
increase the use of the yuan in its economic transactions with China or
even with other countries.
Among the reasons for that is that indeed trade and investment relations
of China with Latin American countries are becoming more important. For
example, as can be seen in Table 3, for countries like Brazil, Chile, Peru,
Uruguay, their main export market is China, and for countries like
Argentina, Bolivia, Brazil, Chile, Peru, and Paraguay, their main source of
imports is China.

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Table 3. First and second main partner in total exports and import of goods in some
Latin American countries, year 2022, in percentage.
Country Imports Exports
Argentina 1. China 20.8%
2. Brazil 19.9%
1. Brazil 14.3%
2. China 8.9%
Bolivia 1. China 19.4%
2. Brazil 15.1%
1. India 16.5%
2. Brazil 13.8%
Brazil 1. China 22.2%
2. U.S. 18.9%
1. China 26.8%
2. U.S. 11.2%
Chile 1. U.S. 23.9%
2. China 23.1%
1. China 37.9%
2. U.S. 15.2%
Colombia 1. U.S. 24.5%
2. China 24.1%
1. U.S. 30.9%
2. Panama 14.6%
Ecuador 1. U.S. 25.9%
2. China 22.0%
1. U.S. 27.7%
2. China 17.6%
Peru 1. China 26.1%
2. U.S. 23.6%
1. China 30.0%
2. U.S. 14.5%
Paraguay 1. China 29.5%
2. Brazil 23.5%
1. Brazil 36.8%
2. Argentina 19.5%
Uruguay 1. Brazil 19.9%
2. China 18.1%
1. China 21.4%
2. Free Zones 19.0%
Source: Trade Map, Data for Cuba and Venezuela is very outdated
China has Free Trade Area (FTA) agreements with Chile, Peru, Costa Ricaix
,
and this year it has signed FTAs with Nicaragua, and Ecuador. These
agreements will help increase trade between China and countries in the
region.
China is also becoming an important investor in the region. It began in the
1990s investing in the natural resources sector but now invest in several
sector, like infrastructure and manufacturing sector. For example, it is
estimated that Chinese Foreign Direct Investment, FDI stock at the end of
2022 was 24% of the total in Peru, 22.8% in Argentina, and 9.5% in Brazilx
.
Up to now, 21 countries in the region has joined the Belt and Road
Initiative: These countries are (in order of joining it, from the first to the
last): Panama, Trinidad and Tobago, Surinam, Dominica, Bolivia, Guyana,
Uruguay, Costa Rica, Venezuela, Grenada, El Salvador, Chile, Dominican
Republic, Cuba, Ecuador, Antigua and Barbuda, Barbados, Jamaica, Peru,
Nicaragua, and the last one, Argentina, which joined in February 2022xi
.

8. 8
Several Latin American countries have joined the Asia Investment and
Infrastructure Bank, AIIB: Argentina, Brazil, Chile, Ecuador, Peru, and
Uruguayxii
, and Bolivia and Venezuela are prospective members.
China has bilateral swap lines (BSL) with several Latin American countries.
In a BSL central bank of two countries agree to acquire each other´s
currency in exchange of its own. Argentina, Brazil, Surinam, and Chile
central banks have established BSL with China.
In concrete terms, for example in august this year Argentina signed a deal
with China´s central bank to settle more than half of the 2.7 billion dollars
debt due to be paid the first week of that month to the IMF. For this it
used the yuan equivalent to 1.7 billion dollars under the swap
arrangement it has with the People´s Bank of Chinaxiii
.
Regarding investment, also in Argentina in august it was announced that a
Chinese company, Brunt Recycling, did through Bank of China an
investment in its business of lithium, of 428,736 yuan, or an equivalent of
58,892 dollarsxiv
.
In trade, from May this year Bolivia began using yuan to pay for some
exports and imports. Bolivia Economic Minister said in June that between
May and July his country conducted financial operations amounting to 278
million yuan (around 38.7 million dollars)xv
.
In august Brazil proposed to Argentina that it could use yuan guarantees in
its exports. In this way Brazilian companies will be provided with yuan
guarantees under a credit line of an equivalent of 144 million dollars, to be
offered to Argentine importersxvi
. This proposal involves Argentina
providing yuan-denominated guarantees that match the credit line
amount.
Still, the countries in Latin America that are using yuan in their
international transactions, are countries that have some problems with
balance of payments and scarcity of dollars, like Argentina and Bolivia. But
it is foreseeable that in the future more Latin American countries would
use yuan.
One interesting case is Brazil, that for example, with President Lula, is a
strong advocate of using a different currency than the dollar. Brazil
reached an agreement with China to access the Cross-border Interbank
payment System, the China equivalent to international financial messaging

9. 9
service Swiftxvii
, in April this year. Also, Brazil´s yuan-denominated foreign
exchange assets reached a percentage of 5.37% at the end of 2022, the
second largest after the dollar and surpassing the euro assetsxviii
.
Conclusions
- Several countries are beginning to use other currencies than the
dollar, among other reasons, because U.S. use its currency as a
“weapon.”
• Given China growing presence in the world economy, global
trade, and international finance, use of its currency will increase.
• But for the yuan to become a widely used international currency
China should execute some reforms
• Through institutions like the AIIB, the New Development Bank,
and Chinese lending, international use of its currency will
increase.
• Given the strong economic links between Latin American
countries and China, it will be natural for them to use more yuan.
September 17th
, 2023
i
Carlos Aquino Rodriguez is Director of the Centre for Asian Studies, National University of San Marcos,
Lima, Peru.
ii
Nikkei Asia: China´s U.S. Treasury holding hit 12-year low on rate hikes, tensions
https://asia.nikkei.com/Business/Markets/Bonds/China-s-U.S.-Treasury-holdings-hit-12-year-low-on-
rate-hikes-tensions
iii
Global Times: Over 80% of Russia-China trade settlement now using local currencies: Russian president
https://www.globaltimes.cn/page/202306/1292737.shtml
iv
The World Bank data: https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?view=chart
v
See WTO World Trade Statistical Review 2023
https://www.wto.org/english/res_e/booksp_e/wtsr_2023_e.pdf
vi
See UNCTAD: World Investment Report 2023 https://unctad.org/publication/world-
investment-report-2023
vii
Financial Times: BRICS banks strive to reduce reliance on the dollar
https://www.ft.com/content/1c5c6890-3698-4f5d-8290-91441573338a
viii
The Dialogue: China´s RMB isn´t set to outpace the dollars in Latin America...yet
https://www.thedialogue.org/blogs/2023/06/chinas-rmb-isnt-set-to-outpace-the-dollar-in-latin-
americayet/

10. 10
ix
See WTO
http://rtais.wto.org/UI/PublicSearchByMemberResult.aspx?MemberCode=156&lang=1&redirect=1
x
Based in data by the American Enterprise Institute in its report of July 2023: “China´s Global
Investment surges, finally” https://www.aei.org/research-products/report/chinas-global-investment-
surges-finally/, and UNCTAD: World Investment Report 2023 https://unctad.org/system/files/official-
document/wir2023_en.pdf
xi
Global Times: China, Latin America brace for deeper ties in BRI cooperation
https://www.globaltimes.cn/page/202304/1288649.shtml
xii
AIIB: https://www.aiib.org/en/about-aiib/governance/members-of-bank/index.html
xiii
Caixin: Argentina taps China currency swap line to help repay IMF loan
https://www.caixinglobal.com/2023-08-03/argentina-taps-china-currency-swap-line-to-help-repay-imf-
loan-102089663.html
xiv
Telam: El Banco de China realizo la primera inversión directa en yuanes en Argentina
https://www.telam.com.ar/notas/202308/638731-banco-de-china-yuan-inversiones-argentina.html
xv
AP: Bolivia is the latest South American nation to use China´s yuan for trade in challenge to the dollar
https://apnews.com/article/yuan-bolivia-trade-argentina-brazil-dollar-
696bfb7c5ab68d4f0a87a7f6557678f0
xvi
Reuters: Brazil propose yuan guarantees for exports to Argentina, finance minister says
https://www.reuters.com/business/finance/brazil-proposes-yuan-guarantees-exports-argentina-
finance-minister-says-2023-08-23/
xvii
Swift stands for “Society for Worldwide Interbank Financial Communications”
xviii
South China Morning Post: Which 8 countries are using China´s yuan more, and what does it means
for the US dollar? https://www.scmp.com/economy/economic-indicators/article/3220087/which-8-
countries-are-using-chinas-yuan-more-and-what-does-it-mean-us-dollar