The Iran War Boosts the Yuan... March Trade Settlements Up 50% from Previous Month

March CIPS Yuan Trade Settlements Reach 315 Trillion Won
Impacts from Hormuz Blockade and Russia Sanctions
"Global Market Share Remains Limited at Only 3%"

On May 4, the Nihon Keizai Shimbun (Nikkei) reported that international settlements in Chinese yuan have surged as a result of the ongoing war between the United States, Israel, and Iran.

According to Chinese research firm Wind, trade-related yuan settlements through the Cross-Border Interbank Payment System (CIPS) in March reached 1.46 trillion yuan (approximately 314.6446 trillion won), a 50% increase from the previous month. Compared to March 2021, five years ago, the volume has tripled.

Reuters Yonhap News

After the outbreak of the Iran war on February 28, Iran closed the Strait of Hormuz and demanded tolls from oil tankers and other vessels. Due to U.S. sanctions, Iran was unable to settle toll payments in U.S. dollars and instead turned to virtual assets and the Chinese yuan.

Beyond Iran, the share of yuan settlements is also rising across the Middle East. According to Caifu, the Chinese-language edition of U.S. economic media outlet Fortune, as of the end of March, the yuan accounted for a record-high 41% share of oil trade settlements between China and the Middle East. Two major state-owned banks in Saudi Arabia have also joined CIPS.

Russia, which has expanded trade with China due to U.S. and European financial sanctions imposed after the war in Ukraine, has also contributed to this trend. In 2022, Russia's major banks were expelled from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) international payment system. Since then, unable to use the dollar or euro, settlements have been made in rubles and yuan. Russia has been securing financial resources for the war in Ukraine by selling oil and natural gas to China.

Yuan settlements have continued to increase into April. According to the Shanghai Securities News, on the 8th of last month, CIPS recorded a daily transaction volume of 1.22 trillion yuan, the highest ever.

The increase in demand for yuan is also reflected in the yuan's exchange rate against the dollar. While the currencies of other Asian countries such as South Korea and Japan, which are expected to face trade deficits due to rising oil prices, have declined since the outbreak of the Iran war, the value of the yuan has increased. According to Investing.com, the exchange rate was around 6.94 yuan per dollar on February 2 and reached 6.83 yuan per dollar on May 1—a 1.7% drop in three months. A decline in the yuan-per-dollar exchange rate indicates an appreciation of the yuan.

However, Nikkei noted that the spread of the yuan in international transactions remains limited. According to SWIFT data, as of March, the yuan's global share as a settlement currency was only 3%. The gap with the dollar (51%) remains wide, and the yuan's share is still lower than that of the euro, pound, and yen. Nishihama Toru, chief economist at the Dai-ichi Life Research Institute, said, "The yuan's share is gradually expanding, and the internationalization of the yuan and de-dollarization trend will also accelerate."

This content was produced with the assistance of AI translation services.