Every country dreams of settling trade in its own currency, not dollars. In the last few years, there have been some developments. Bilateral deals and arrangements have tried to bypass the US dollar. India-Russia trade is a prominent example. The latest in the row is India-Japan. They have decided to launch a yen-rupee settlement. Initiatives like these create buzz across continents and deserve a separate article.
But let us talk about a different approach: the Chinese way of doing things. We all know that global commodities are quoted in US dollars. Be it crude oil, copper or coffee. It doesn't matter where it is produced and consumed. It is always priced in dollars.
Now, China wants commodities to be quoted in yuan. But it knows that it is difficult, almost impossible, even by the next decade. Therefore, instead of challenging dollar benchmarks in mature markets, it's trying to build new yuan benchmarks for newer commodities like lithium carbonate, where the rules are still being written. The journey will be tough, but it is worth your attention.
Reforms in Commodities Market
We have read how ambitious China is when it comes to internationalisation of the yuan. It is pulling multiple levers, and one of them is commodities markets. The strategy has two parts: i) making yuan-denominated commodity transactions easier for foreign institutions, and ii) building price benchmarks for commodities where China has a structural advantage.
To achieve the first objective, China has created two channels to increase foreign participation.
The first is the Overseas Intermediary (OI) mechanism. Instead of opening its entire domestic futures market, China internationalises selected commodity contracts and allows foreign investors to trade them through approved offshore brokers, without requiring a China-based entity or bank account. Investors can post margin in US dollars or offshore yuan (CNH), but the final settlement must be in yuan.
The second route is the Qualified Foreign Investor (QFI) programme. Foreign institutions gain direct access to a wide range of commodities, rather than contract-specific access via the OI mechanism. This is open to approved investors.
Here are some major steps taken in the last few years to strengthen its commodities market:
- In March 2018, the Shanghai International Energy Exchange (INE) launched yuan-denominated crude oil futures and opened them to overseas investors. Later, the exchange expanded international participation to contracts such as rubber, low-sulphur fuel oil and bonded copper.
- The same year, the Dalian Commodity Exchange (DCE) opened iron ore futures to foreign participants. It also opened its entire soy complex, including soybeans, soymeal and palm olein contracts.
- In November 2020, INE opened copper futures for international investors while in April 2026, it added copper options trading.
- In November 2021, China introduced the QFI mechanism.
- In 2021, the new commodity exchange, the Guangzhou Futures Exchange (GFEX), was launched, which focuses on energy-transition materials. Today, products like palladium, platinum, polysilicon, lithium carbonate, and silicon metal are traded on this exchange.
- In January 2026, the regulator added 14 futures and options contracts under "specified domestic products" eligible for overseas participation.
- The Zhengzhou Commodity Exchange internationalised products such as purified terephthalic acid (PTA), methanol and sugar were eventually joined by rapeseed oil, rapeseed meal and peanut kernel futures and options in early 2026.
- Nickel futures and options were added in 2026.
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Chinese Derivatives Not Yet The Go-To Mechanism
It is too early to give any verdict. But it seems that these initiatives are gathering some success.
Take crude oil. INE's yuan-denominated contract is now the world's third-largest crude futures contract by volume, after Brent and WTI, and is becoming a key Asian benchmark. Iron ore has also gained traction, considering solid demand from China itself. Traders are now using DCE futures for price discovery in Chinese port markets alongside Singapore Exchange contracts. Soybean and rapeseed products are also in demand but have not replaced dollar pricing or Chicago Board of Trade (CBOT) benchmarks yet.
Replacing the dollar is difficult. Most companies and traders demand yuan contracts only to hedge their China exposure.
Lithium Derivatives Can Be China's Best Chance
Recognising how difficult it is to displace dollar benchmarks in mature commodity markets, China has shifted its focus towards a commodity where pricing conventions are still evolving: lithium carbonate. This is where the second part of China's strategy comes into play.
Unlike crude oil or copper, lithium has never had a universally accepted global benchmark. For a long time, there was no exchange-traded price discovery. Parties negotiated the price through opaque contracts. China wants to tap this opportunity before anyone else enters.
China has an advantage in trading lithium. It hosts most of the world's lithium refining capacity, produces over 70% of global lithium-ion batteries, and accounts for more than 60% of cathode material production. Chinese companies such as Tianqi Lithium, Ganfeng Lithium and CATL are critical to the international battery supply chain.
The GFEX launched lithium carbonate futures in 2023. In March 2025, it opened the trade to QFIs. From July 2026 onwards, overseas miners, battery manufacturers, refiners and commodity trading firms can trade lithium carbonate futures more directly through approved intermediaries. That is basically the OI route. Foreign investors could post US dollars or offshore yuan as collateral, but all mark-to-market settlements, margining and physical delivery remained denominated in Chinese yuan.
Singapore-based Orient Futures argues that opening lithium carbonate futures to overseas investors will deepen liquidity, improve price discovery, strengthen China's influence over global lithium pricing and provide better risk-management tools for international firms. S&P Global Ratings suggested that China's dominance in refining and downstream battery production means it is likely to remain the principal driver of global lithium prices over the coming years.
Final Take
Whether China succeeds remains to be seen. Building an international benchmark takes decades. It requires liquidity, trust, legal certainty, broad participation and, above all, strong network effects. The US dollar enjoys all these advantages today.
Lithium could become the first real test of whether a country can convert industrial dominance into pricing power. The opportunity is significant. Every smartphone, electric vehicle and energy storage system depends on lithium, and unlike oil or copper, its global pricing framework is still evolving.
But there are constraints. Advances in battery technology could reduce lithium's importance over time, while geopolitical tensions are encouraging countries to diversify supply chains away from China. China's capital controls and relatively restrictive financial system could also make yuan-denominated trading less attractive for global participants.
Even so, we need to keep a close eye on China's strategy. At a time when de-dollarisation is largely about trade settlement and payment systems, China is pursuing something far more ambitious: setting benchmark prices in international commodity markets.
Disclaimer: The views expressed in this article are solely those of the author and do not necessarily reflect the opinion of NDTV Profit or its affiliates. Readers are advised to conduct their own research or consult a qualified professional before making any investment or business decisions. NDTV Profit does not guarantee the accuracy, completeness, or reliability of the information presented in this article.
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