China’s yuan diplomacy, a new form of debt trap?

China is aggressively trapping countries through yuan diplomacy in order to decrease the influence of the US and dollar. China has managed to convince Brazil, led by radical leftist LuizInácio Lula da Silva, to drop the US dollar in signing a deal.

The latest Sino-Brazilian deal is part of a larger Chinese strategy to decrease the influence of the U.S. Dollar (USD). Dollar is the world’s dominant currency as it facilitates most international trade in the world. China wants to use Yuan, also called renminbi, to counter the influence of the United States.

However, China and Brazil agreed to no longer use the U.S. dollar to conduct trade, instead relying on the Chinese yuan and Brazilian real. The two countries have agreed to create an offshore clearinghouse, which will allow them to abandon the US currency in bilateral trade.

According to the eastern herald.com, China has signed an agreement with Brazil on payment in yuan, which greatly facilitates exchanges. “We will expand food and mineral cooperation, seek the possibility of exporting high value-added goods from China to Brazil and from Brazil to China”, quoted the eastern herald.

The conversion of the yuan into real will become faster and less expensive. It may be mentioned here that China is Brazil’s largest trading partner.

Experts do not rule out the possibility of China pressuring Brazil to trade in Yuan rather than dollar. The reality is that the agreement followed aggressive efforts in the past five years by China to limit the influence of the U.S. dollar and slowly convince the world to use commerce using the yuan.

Beijing has long counted on Brazil as an ally and friend – and fellow member of the BRICS economic and political coalition, whose members have pushed for the eradication of the dollar in global trade – even through the tepid relations with conservative former President Jair Bolsonaro. Towards the end of his term last year, Bolsonaro administration officials stated they had a “great interest” joining China’s Belt and Road Initiative (BRI), a global debt trap plan to erode poorer nations’ sovereignties through predatory loans meant for infrastructure development.

Brazil is the latest country to have agreed to do trading in Yuan. As South America’s biggest economy, Brazil will now conduct its financial transactions with China in RMB which is a significant achievement for Beijing. Considering talks between Brazil and Argentina to establish a common currency, the use of RMB in Sino-Brazilian trade is likely to open the door for other South American countries to establish clearing arrangements with China. However, China has been trying to expand its influence beyond just South America.

The increasing ties between China and Saudi Arabia have set the stage for acceptance of RMB.  Saudi Foreign Minister Mohammad Al-Jaddanstated that Saudi Arabia was open to exporting energy to China through RMB. These moves will have significant implications not only for international trade, but also great power competition with the United States.

Few days ago, Russiastated that it was ready to increase settlements in yuan in its foreign trade. President Vladimir Putin recently made it clear in talks with his Chinese counterpart Xi Jinping.”We are for the use of Chinese yuan in settlements between Russia and the countries of Asia, Africa, and Latin America.I am sure that these forms of settlements in yuan will be developed between Russian partners and their counterparts in third countries,” RT News quoted Putin. Two thirds of current trade between Moscow and Beijing is now carried out in national currencies — the yuan and the ruble, the Russian President noted.

The latest data from the Bank of Russia showed that the yuan has become a major player in Moscow’s foreign trade, with its share in the country’s import settlements jumping to 23 per cent by the end of last year from only 4 per cent in January 2022.

Things may look bright for Brazil or other countries opted for Yuan, but the reality is that China has been aggressively pushing countries to accept its currency for trade with a specific purpose. News reports suggested that China has now been trapping African nations into debt and as part of “forgiving” that debt China wants them to use the Chinese CBDC the Digital Yuan for all international commerce, trade and finance payments. By doing so, China has been establishing the Digital Yuan as the de facto Central Bank Digital Currency (CBDC) currency to the fastest growing economies in the world.

In august 2022, China had announced that they were forgiving billions in debt for 17 African countries but in reality, it was its favorite tool of geopolitical conquest, Debt Trap Diplomacy.