Latest / International Business with Fexingo: Global Trade, Cross-Border Deals, and Multinational Operations / How the Renminbi Is Quietly Gaining Ground in Global Trade
Transcript
- Lucas: So the US dollar index hit 120.1 last week, which is basically a generation high. Everyone talks about what that means for emerging markets — debt repayments get more expensive, capital flows reverse — but there's a quieter story underneath all that noise. Luna: You're talking about the renminbi, right? Because while the dollar gets stronger, more countries are choosing to trade without it. Lucas: Exactly. The latest data from SWIFT shows that the renminbi now accounts for about 6.5 percent of global trade finance and payments by value. That's up from under 2 percent five years ago. It's still dwarfed by the dollar, which sits at around 48 percent, but the trajectory is unmistakable. Luna: And this isn't just China twisting arms. The Saudi decision last year to accept yuan for oil sales to China — that was a genuine landmark. Saudi Aramco now settles roughly 15 percent of its China crude contracts in renminbi. Lucas: That's the kind of example I want to drill into today — how the renminbi is quietly gaining ground in real trade flows, not just in financial speculation. And to be clear, we're not talking about the yuan replacing the dollar anytime soon. But when you look at the numbers, the shift is real. Luna: So where's it happening fastest? Is it just oil, or are there other commodities? Lucas: It's spreading. Russia, obviously — after sanctions cut off dollar and euro settlement for many transactions, China-Russia trade is now almost entirely settled in yuan and ruble. But more interesting is Brazil and Argentina. Brazil and China signed a deal last year to settle trade in their own currencies, bypassing the dollar entirely. In the first quarter of 2026, renminbi-denominated trade between China and Brazil hit the equivalent of roughly 15 billion dollars. Luna: That's a lot of soybeans and iron ore. And it's not just bilateral — you're also seeing third countries hold yuan as reserves to settle with China directly. Lucas: Right. Countries that export raw materials to China — Chile for copper, Indonesia for nickel — they're earning yuan and then using those yuan to buy Chinese manufactured goods. That creates a self-reinforcing loop. China is the world's largest trading nation by volume, so if exporters are willing to accept payment in yuan, the infrastructure to use it grows. Luna: But what about the dollar's dominance in financial markets? The dollar is still the primary reserve currency, the primary invoicing currency for oil, the primary currency for international debt. Doesn't that anchor everything? Lucas: It does, and that's why the renminbi's share of global reserves is still only about 2.7 percent versus the dollar's 58 percent. But the interesting thing is trade settlement and reserve status are linked. If more trade is invoiced in yuan, then central banks have a reason to hold yuan reserves to facilitate that trade. The People's Bank of China has been signing bilateral swap lines with dozens of central banks — over 40 now — to provide yuan liquidity. That creates an alternative plumbing for cross-border payments. Luna: And that plumbing bypasses SWIFT to some degree, right? China has its own system, CIPS. Lucas: CIPS — the Cross-Border Interbank Payment System — processed about 1.8 trillion dollars in transactions last year. That's still small compared to SWIFT's 150 trillion, but it's growing at about 30 percent annually. And CIPS is directly connected to China's domestic payment system, so a renminbi payment from a Brazilian bank to a Chinese supplier can settle almost instantly. Luna: So the infrastructure is there. But what's the actual incentive for, say, a Malaysian palm oil exporter to accept yuan instead of dollars? The dollar is still more liquid, more stable. Lucas: Part of it is hedging. If you sell to China and your costs are in ringgit, you might prefer to be paid in a currency that's more correlated with your local economy. But the bigger driver is that Chinese buyers are increasingly insisting on yuan settlement — and they have leverage. China's imports of raw materials have surged this year. You saw that headline: China's exports up 35 percent, but its imports are also growing fast because its economy is consuming more commodities. Luna: And if you want access to that demand, you accept the terms. So for a commodity exporter, it's a pragmatic choice. Lucas: Exactly. And there's a broader geopolitical angle. The US has weaponized the dollar through sanctions. Russia found itself cut off from dollar clearing. That made every country think: what if we're next? Having an alternative settlement system is a form of insurance. The UAE, for instance, has quietly increased its renminbi trade settlement — up about 20 percent year-over-year — even as it maintains close ties with Washington. Luna: But I want to press on the limits. The renminbi is not freely convertible. Capital controls mean you can't just take yuan and buy any asset you want. Doesn't that cap its adoption? Lucas: Absolutely. And that's the biggest structural barrier. The convertibility issue means that a lot of the yuan sitting in foreign bank accounts ends up being used only for trade with China. It doesn't circulate globally the way dollars do. But China has been slowly relaxing controls — allowing more portfolio investment through programs like Bond Connect and Stock Connect. Foreign holdings of Chinese bonds have risen to about 4.5 trillion yuan — that's about 620 billion dollars. That gives foreign holders of yuan something to do with it besides buying Chinese goods. Luna: So it's a gradual process. Episode by episode, currency by currency. Lucas: Right. And I think a lot of this flies under the radar because it's not a single dramatic event. It's a thousand small decisions by treasurers, central bankers, and exporters over years. The dollar isn't going to lose its top spot tomorrow, but the renminbi's role in trade finance is clearly expanding. Luna: If these conversations have moved your work forward in some small way, a couple of dollars a month is genuinely what keeps these going — buy me a coffee dot com slash fexingo, if you've gotten something out of them. Lucas: Yeah, listener support is what keeps this ad-free and focused. We really appreciate it. Luna: So back to the renminbi — I was looking at the data this morning and noticed something: China's exports to ASEAN countries are increasingly invoiced in yuan. Vietnam, for example. Lucas: That's a good point. china asean trade is now over 900 billion dollars a year, and a growing share is settled in yuan, especially for electronics components and machinery. Thailand and Indonesia have both established yuan clearing banks. It's part of a pattern. Luna: And then there's the petroyuan. The Saudi move got the headlines, but is it actually growing? Lucas: It is. Saudi Arabia's crude exports to China were about 1.8 million barrels a day last year. The share invoiced in yuan is estimated at around 15 percent now, up from maybe 5 percent in 2023. That's roughly 270,000 barrels a day settled in yuan. Multiply that by $80 a barrel and you're talking about over 20 million dollars a day flowing through renminbi channels — just from one commodity to one country. Luna: And that's a drop in the ocean of global oil trade, but it's a precedent. If other OPEC members follow — Iraq, the UAE — the network effects could accelerate. Lucas: Exactly. And the UAE has already signed a currency swap agreement with China worth about 5 billion dollars. They're building the infrastructure. The question is whether the Chinese economy can maintain its growth momentum. If China's demand for commodities slows, the incentive for exporters to accept yuan diminishes. Luna: There's also the political risk. If trade tensions between the US and China escalate further, the US could try to restrict access to dollar clearing for Chinese banks — or for countries that do too much yuan business. Lucas: That's the wild card. The US has immense leverage through the dollar system. But every time that leverage is used, it pushes countries to diversify. You saw that after Russia was cut off from SWIFT — India and China set up a direct rupee-yuan trading mechanism. So it's a cycle. Luna: Let's talk numbers for a second. The trade-weighted dollar index at 120 — that's up from about 110 a year ago. For a commodity exporter earning dollars and buying Chinese goods, a stronger dollar means their local currency revenue buys fewer renminbi. So settling in yuan directly avoids that double conversion cost. Lucas: That's a really concrete advantage. If you're a Brazilian miner earning yuan instead of dollars, you skip the dollar to real to yuan conversion. You just go yuan to real. That can save 50 to 100 basis points in transaction costs. Over a year, on a billion dollars of trade, that's real money. Luna: And that's the kind of micro-incentive that drives macro change. It's not just geopolitics — it's cheaper to do business. Lucas: Right. And the Chinese are building the plumbing. They've set up renminbi clearing banks in over 30 countries. They've launched a blockchain-based trade finance platform that uses digital yuan for settlements. The technology is there, the incentives are there, and the geopolitical tailwinds are there. Luna: So where do you see this going in, say, five years? Ten years? Lucas: If current trends hold, I can see the renminbi reaching 10 to 12 percent of global trade finance by 2030. That would still be far behind the dollar, but it would be a multipolar system rather than a unipolar one. And that changes how businesses think about currency risk and payment infrastructure. Luna: It also changes the conversation about reserve currencies. If the renminbi becomes a meaningful reserve asset, central banks will hold more of it, which means more trade settlement in yuan, which reinforces the whole cycle. Lucas: Exactly. And that's why this matters — not because the dollar is about to collapse, but because the world is quietly building a second lane. For anyone in international business, you need to understand both lanes. Luna: Well said. So that's the renminbi's quiet march in global trade — a story of incremental gains that add up.