Business Insider: "China sees the energy transition as a way to increase the importance of the yuan"

The US dollar dominates global finance, especially in commodity markets, but China sees the transition to renewable energy as a way to increase the importance of the yuan, writes Business Insider.

In this regard, Zongyuan Zoe Liu, a China researcher at the Council on Foreign Relations (an American non-profit organization specializing in US foreign policy and international affairs), points to critical resources for green technologies such as electric vehicle batteries and wind turbines.

"Chinese policymakers and researchers see the energy transition as an opportunity for the nation to boost the renminbi's global position in commodity markets. For them, there is no guarantee that the US dollar's dominance in the current fossil fuel-based economy will hold in a decarbonized world," Liu wrote in Noema magazine. This is because China is a dominant supplier of essential resources for the transition to the green economy, such as rare minerals and critical metals such as cobalt, the researcher quoted by Business Insider also says.

To take advantage of this, China has set up several commodity exchanges where prices are quoted in yuan. These include Bautou Rare Earth Products Exchange in 2014 and Ganzhou Rare Metal Exchange in 2019. Beijing authorities have also established yuan-denominated exchanges focused on oil and copper, another metal used in green energy as well as other industries.

"However, China remains concerned about its heavy reliance on the US dollar for pricing and settlement of commodity contracts," Liu added. "For this purpose, the country also appealed to multilateral partnerships".

According to the researcher, groups such as the BRICS bloc and the Shanghai Cooperation Organization not only helped China advocate for a less dollar-centric financial system, but also facilitated the country's growing importance in global commodity trade, she pointed out.

For example, China and Brazil, two BRICS members, are some of the largest producers of lithium, a list to which Iran could also be added, a country that also holds some of the largest zinc reserves in the world.

"In this context, as a group of non-Western countries, the Shanghai Cooperation Organization represents a potentially powerful coalition of commodity exporters and importers focused on using the renminbi to finance the entire life cycle of commodities, from production to trade , until consumption," Liu wrote.

To strengthen currency ties between trading partners, Chinese authorities have long advocated the use of local currencies, while promoting ideas of regional integration and settlement systems such as a Shanghai Cooperation Organization development bank. At the same time, the BRICS countries are among the most vocal supporters of de-dollarization.

On the other hand, China's goal is not to completely overthrow the dollar from international finance, as this would financially ruin the country given its heavy investment in US assets, Liu also said. But Beijing's efforts should not be ignored. "If the status of the renminbi as a global currency were to increase or become the dominant currency, the global trading system and the international political landscape would be reshaped," Liu added, quoted by Business Insider.