Chinese Iron Ore Importers Turn to Digital Yuan to Reduce Dependence on U.S. Dollar
The extensive effort taken on by almost every part of the Chinese government to push for the development of the digital yuan seems to have worked. However, it’s not the industrious push to digitize the economy that made it attractive for many large companies, but rather the stability that a central bank digital currency would offer.
According to the latest report China Economic Net, the iron ore sector in China is becoming increasingly interested in blockchain technology and the possibilities it offers when it comes both to international and internal settlements. A push for blockchain adoption didn’t happen spontaneously, though—it turns out that nothing facilitates digitization better than sheer need.
Chinese media reported that the entire iron ore sector in China has begun to shift towards blockchain-powered cross-border platforms. Such a shift will enable them to conduct trade deals in China’s national currency, the renminbi (RMB), helping them reduce their dependency on the U.S. dollar. Some of the world’s biggest iron miners, most of them located in Europe and Asia, have called for the adoption of blockchain platforms that would enable them to sell their product directly to Chinese companies—without touching the dollar.
But, however novel the idea might sound, this isn’t the first time the world’s iron ore giants have experimented with yuan payments. The Rio Tinto Group, the world’s second-largest metals and mining corporation, conducted RMB transactions with Baosteel as early as 2014. As the company now enables Chinese customers to buy their products in small quantities from the company’s Chinese ports, enabling faster and more secure transactions through a blockchain seems like a natural step forward.
The company took the blockchain challenge quite seriously, completing an RMB 100 million ($14.44 million) cross-border blockchain-based settlement transaction with Ansteel Group International Economic and Trade Co., Ltd.
Last week, the Xinhua News Agency reported that RMB cross-border amount to over RMB 12.7 trillion, or around $1.83 billion, this year. While the number shows that there is much room left to grow, it still represents a 36.7% increase when compared to last year.
With a market hungry for a faster and cheaper way of settling large international transactions, the instability of the U.S. dollar is increasingly pushing it towards the upcoming digital yuan. The pilot projects testing out various uses of the digital yuan can only serve as fuel to this fire.
However, it’s important to note that most of the initiatives for the adoption of the digital yuan are focused on small-scale or small-amount payments in relatively closed systems—think transportation networks or banks. While it’s still too early to tell whether the local DCEP initiatives might include experimenting with large, cross-border settlements, it’s clear that it will take months before such a system even sees the light of day.
Nonetheless, with China expected to consume up to 800 million tons of steel in the next ten years, we can expect more resources being put into enabling blockchain transactions for such a huge industry.