Brazil's Suzano SA and Yuan Adoption Reflect Shift from Dollar Dominance in Commodity Markets

Lede: Brazil's Suzano SA, the largest hardwood pulp producer, is considering pricing its products in yuan for sales to China, signaling a growing shift away from the dollar's dominance in commodity markets. This follows the move last month by a Rio-based Chinese bank connecting to China's cross-border interbank payment system (CIPS) to support trade settlements between China and Brazil in renminbi.

What we know:

• Suzano SA is responding to growing importance of China's currency and demands of smaller customers.
• Last month, Brazilian subsidiary of China's Bank of Communications, Banco BOCOM BBM, was linked to CIPS for direct exchange between Brazilian real and Chinese yuan.
• According to the Asia Times, Sino-Brazil bilateral trade reached $171.49 billion in the previous year.

The Background: China has been increasing its efforts to internationalize the renminbi and reduce reliance on the US dollar. The US sanctions on Russia have accelerated this process by eroding confidence in the dollar and promoting the use of other currencies, including the renminbi. The dollar's diminishing dominance is also a result of increasing tensions between the US and China, which could affect the global economy.

Likely Outcomes:

• More companies and countries may adopt the renminbi for settling trade transactions, leading to a greater presence of China's currency in international trade and a decline in the US dollar's role in global trade, causing a shift in the balance of economic power and global trade dynamics.
• China's influence in the global market may increase further as more companies and countries choose to conduct business in renminbi, potentially altering international trade policies and practices. As the renminbi becomes more widely accepted, Chinese companies may gain better access to international markets, promoting the growth of China's economy and businesses.
• The shift away from the dollar could lead to a reevaluation of the US's economic and monetary policies, as well as its role in international trade.
• Countries that are reliant on the US dollar for trade may need to adapt to a more multi-currency environment, which could pose challenges and opportunities for their economies.

Quotables:

• “China will become more relevant in the global market, I have no doubts.” – Walter Schalka, Suzano CEO
• “More and more countries are willing to use the renminbi in clearing and payments, which is a significant step for yuan internationalization.” – Zhu Min, vice-chairman of the China Center for International Economic Exchanges
• “With Brazil's deal, we have now completed the second stage [of renminbi internationalization].” – Zhang Chao, researcher at Taipei Institute, a Beijing-based think tank

Good Reads:

World’s Biggest Pulp Producer Considers Trading With China in Yuan (Bloomberg)

China and Brazil reach RMB-based trade deal (Asia Times)