China’s Shift Away from the Dollar
China’s efforts to lessen its reliance on the US dollar began during the global financial crisis of 2008-2009. Concerned about the US Federal Reserve’s aggressive money printing, which could undermine the value of China’s $1.9 trillion in foreign assets, the People’s Bank of China (PBOC) initiated a pilot program in July 2009. This allowed for cross-border transactions to be settled in renminbi for the first time.
Zhu Hexin, the deputy governor of China’s central bank, noted at an economic summit in June that this pilot project kickstarted a campaign that now sees the renminbi being used for 30% of China’s $6.2 trillion in global merchandise trade.
If we include all cross-border transactions, like bond purchases and overseas investments, the renminbi’s share could rise to 53%, surpassing dollar transactions for the first time this year.
Last year marked a significant moment, as the renminbi briefly surpassed the euro, becoming the second-most popular currency in global trade finance—holding 82% of the dollar’s market share, according to SWIFT.
Additionally, the International Monetary Fund (IMF) reported that the renminbi’s portion of global foreign exchange reserves reached a record 2.4% in the second quarter of this year.
Limits to the Renminbi’s Global Role
While BRICS countries have looked into alternatives to the dollar, including a common currency, China’s approach has been more pragmatic. They’ve gradually enhanced the renminbi’s role in international trade while maintaining strict exchange controls.
“China seeks to make the renminbi a currency for trade—the real economy,” said Miguel Otero Iglesias, a senior researcher at the Elcano Royal Institute in Spain. “The focus isn’t really on making it a financial currency.”
He further expressed that if the Chinese government permits the renminbi to be used in global financial markets, it could lead to a decrease in the Communist Party’s control over the domestic credit system.
Otero Iglesias emphasized that Beijing wants finance to support, not dictate, the real economy.
Reports often suggest that the recent rise of the renminbi is a challenge to the dollar’s dominance, a position it has held for nearly 80 years. Yet, Dan Wang from Eurasia Group sees a different story.
“The Chinese government has not termed this process de-dollarization,” Wang stated. “A more fitting description would be the regionalization of the renminbi, especially toward the Global South.”
In the past few years, leveraging its economic strength and the geopolitical impact of the Ukraine war, China has managed to secure favorable energy and goods deals, increasingly settled in renminbi.
“China may gradually require higher proportions of trade to be conducted in yuan, especially as it gains more leverage,” Wang pointed out, observing that state-owned enterprises are already pursuing arrangements like this.
Renminbi’s Role in Debt Financing
Another strategy Beijing employs to promote renminbi usage is through overseas lending, which embeds the currency into the debt structures of developing nations.
According to reports, external renminbi holdings by Chinese banks have surged to $480 billion over five years. This aligns with China’s roughly $1 trillion in external financing through the Belt and Road Initiative.
With yuan interest rates significantly lower than those of the dollar, countries like Kenya, Angola, and Ethiopia have recently switched their old dollar debts to renminbi, while others, including Indonesia and Kazakhstan, are issuing bonds in the Chinese currency.
The government has also developed a robust financial architecture that could function outside the dollar-dominated system. A key component of this is CIPS, China’s cross-border interbank payment system—an alternative to SWIFT.
Payment hubs are established in financial centers such as Singapore, London, and Frankfurt. Moreover, the central bank is piloting a digital renminbi, aiming to enhance cross-border payments and lessen reliance on Western banks.
Otero Iglesias notes that this could position China as a leader in digital sovereign currency.
China has also formed currency swap agreements with over 50 countries, facilitating local currency exchanges for renminbi. This provides a crucial buffer against U.S. sanctions for countries like Russia and Iran.
Countries heavily reliant on Chinese trade and investment, such as Argentina, Pakistan, and Türkiye, stand to benefit as well.
Tight Government Control over the Yuan
In contrast to Western currencies, the renminbi is tightly regulated by the Chinese government and cannot be freely exchanged without its supervision.
The domestic credit system is mostly managed by state-owned banks under political oversight. The government is wary of risks, fearing that unrestricted movement could lead to speculative attacks and outside influence, making full convertibility unlikely.
“Beijing is not likely to adopt a liberal approach,” Otero Iglesias remarked. “The renminbi’s internationalization will be guided by the strict control of the Communist Party.”
Without full convertibility, the renminbi may struggle to achieve widespread usage as a financial currency for global investments and reserves. In fact, the government’s cautious strategy could limit the yuan’s potential value growth.
Moreover, challenges to renminbi-based trade growth arise from China’s own economic imbalances. Domestic demand is weak; with consumer and corporate spending falling amid a real estate crisis.
With factories producing more than needed domestically, China finds itself increasingly reliant on exports for economic driving. If external demand doesn’t stabilize, growth in renminbi trade could falter, especially under the impact of U.S. tariffs.
“Overseas growth is essential,” Wang said. “This underscores the importance of global trade for China.”
If China insists on dealing in its currency more often, trading partners will likely need to adapt—but achieving that will require greater trust, better institutions, and a stronger economy.
