Yuan-denominated settlements in international trade have surged sharply in the wake of the U.S.-Iran war, as Iran has allowed only oil tankers carrying crude paid for in yuan to pass through the Strait of Hormuz and has collected transit fees in the Chinese currency.
Japan's Nihon Keizai Shimbun reported Thursday, citing Chinese financial data provider Wind, that settlements through the Cross-Border Interbank Payment System (CIPS) reached 1.46 trillion yuan (approximately 314.35 trillion won, or $200 billion) in March, up 50% from February. The figure marked a sharp increase from levels before the U.S. "Operation Rough Rider" began on February 28. Yuan settlement volumes rose further last month, with daily settlements reaching a record 1.22 trillion yuan (approximately 262.59 trillion won). The March total was triple the level of March 2021.
The explosive growth in yuan transactions is driven by a rise in yuan-denominated crude oil trade following the U.S.-Iran war. Iran permits only oil tankers carrying crude traded in yuan to pass through the Strait of Hormuz and is also steering transit fees toward payment in yuan and cryptocurrency. Other Middle Eastern oil-producing countries have recently been increasing yuan settlements to unblock their crude export routes. A prominent example is Saudi Arabia, the largest oil producer. The Saudi government announced in March that the share of its crude oil transactions settled in yuan had jumped to 41%.
CIPS, which was launched in 2015 as a counterweight to the U.S.-led Society for Worldwide Interbank Financial Telecommunication (SWIFT), is now positioned for full-scale growth with the U.S.-Iran war as the catalyst. Paradoxically, the greater the Western sanctions, the larger the scale of yuan settlement has become. Russia, which was expelled from SWIFT under Western sanctions after its invasion of Ukraine, grew more dependent on the yuan, which also contributed to rising yuan settlement volumes. Russia has sold crude oil and natural gas to China instead of Europe, using the yuan as its main settlement currency. Yuan settlements are also spreading beyond Iran and Russia, Nikkei noted. The participation of two major Saudi state-owned banks in CIPS in March reflects the same trend.
International trade remains centered on the U.S. dollar, of course. The dollar's share within SWIFT rose to 51.1% in March, meaning more than half of cross-border transactions are conducted in the U.S. currency. The yuan's share lags far behind at around 3%. Still, experts point out that yuan use is growing in financial markets as part of a currency diversification trend. Andrew Batchelor, head of LCH ForexClear, a subsidiary of the London Clearing House (LCH), told Bloomberg that "settlements linking the dollar and offshore yuan in the foreign exchange and over-the-counter derivatives markets will soon surpass existing euro-dollar linked settlements," adding that "the internationalization of the yuan is a reality."
