Despite some pressure, the USD remains the preferential currency for trade. A greater role of BRICS and other emerging markets in global trade may create more natural demand for alternatives to USD, but this has not happened so far. The higher share of CNY in trade invoicing doesn’t seem to be dethroning USD, but rather pushing out second tier developed market FX, such as GBP. One direction in which USD could be challenged given the geopolitical confrontation is the higher focus of BRICS trade on other emerging market economies. Another area of focus might be the oil market, however BRICS’ share of this market so far is not overwhelming, and the fuel trade overall accounts for a small fraction of the global trade.
One strategy to wean the world off the dollar has been to challenge its international role in trade invoicing. China is the flagship example of this strategy. Since 2009, the People’s Bank of China has been promoting CNY through establishing bilateral swap lines with various central banks (Figure 3). By 2023, the number of those agreements reached almost 40, the total sums available at RMB 4tr (only 2% of it is currently tapped) with around 50% of the sums with China’s Asian partners and neighbours. Amid those measures, the role of CNY in global international reserves increased from virtually zero to 2.6% in 2022, while the share of CNY transactions in SWIFT (an indirect measure of invoicing) doubled to 2.3%.
In parallel, China has been developing its own RMBbased payment system CIPS, its alternative to SWIFT (Figure 4), which has been steadily growing since its inception in 2015 and currently has 91 direct and over a thousand indirect participants worldwide. Meanwhile, one should note that as of March 2022, the Western financial messaging/clearing systems SWIFT/CHIPS had 10X the participants of CIPS and 40X the transactions, likely making the SWIFT picture more representative of the global reality.
It is also worth considering the structure of global trade and the role of dominant currencies per bloc. Based on the structure of global imports (exports would look similar), the geography seems sticky, with roughly one third attributable to the US and EU, another third to China and the rest of Asia, and another third represented by emerging America, Middle East, Central Asia, and Africa (Figure 5). The recent developments include a slight 1pp increase in the share of emerging market countries at the expense of the EU, likely reflecting near-shoring.
