US Dollar Cornered by Chinese Yuan

ছবিঃ সংগৃহীত

News Desk: China has achieved another major milestone in its effort to reduce the dominance of the U.S. dollar in global trade and expand the use of its own currency, the yuan. The global iron ore market, which had long been almost entirely controlled by the dollar, has now seen a significant shift due to Beijing’s efforts. This success came after China resolved a prolonged seven-month dispute with Australia’s largest mining company, BHP.
Previously, all iron ore that BHP sold to China was traded in U.S. dollars. However, under the new agreement, a portion of these transactions will now be settled in Chinese yuan. This is a major symbolic victory for China, as it has been trying for decades to increase the use of its own currency in purchasing natural resources from other countries.
Beyond iron ore, the shift away from the dollar is also becoming visible in the global oil market, where transactions in yuan are increasing. Additionally, last week saw a record rise in borrowing in Chinese currency among international banks. Due to relatively low interest rates, major U.S. financial institutions such as Goldman Sachs are also turning toward China’s offshore lending market. Furthermore, to avoid uncertainties associated with doing business with the United States, many investors and institutions are reducing their reliance on the dollar.
A key driver behind these changes in the mineral market is a new institution established by the Chinese government called the China Mineral Resources Group (CMRG). This organization plays a central role in importing iron ore for Chinese companies. Initially, BHP attempted to maintain direct dollar-based agreements with Chinese steel mills, but CMRG applied consistent pressure.
At one point, CMRG even imposed a ban on the import of BHP’s Jimblebar iron ore. To resolve the deadlock, BHP’s outgoing CEO Mike Henry and incoming CEO Brandon Craig recently met with Chinese officials in Beijing. During that meeting, a new agreement was signed, under which BHP accepted China’s pricing system and made certain concessions.
Other major Australian iron ore producers, such as Rio Tinto and Fortescue, had already accepted China’s domestic pricing index earlier. However, BHP’s agreement—being the largest player—signals that control over this market is increasingly shifting toward China.
For a long time, the S&P Global Platts Index had been the most influential benchmark for determining iron ore prices. However, China has been pushing to replace it with its own “Beijing Iron Ore Port Spot Price Index.”
Under the new agreement, BHP has not only accepted this Chinese index but has also offered an additional 1.8% price discount to Chinese steel mills. According to Chinese media outlet Caixin, pricing for BHP’s Jimblebar iron ore will now be based 51% on Chinese yuan and the Beijing pricing index.
Following this series of developments, it is expected that China will further expand the use of the renminbi in other mineral import transactions in the future.
Source: Forbes