China is incrementally expanding the use and power of the yuan.
China’s drive to reduce reliance on the US dollar crystallized during the 2008–2009 global financial crisis.
Alarmed by the US Federal Reserve’s aggressive money printing, which threatened the value of Beijing’s $1.9 trillion (€1.65 trillion) in foreign assets, the People’s Bank of China (PBOC) launched a pilot scheme in July 2009 to settle cross-border trade in the yuan, or renminbi, for the first time.
If you count all cross-border payments — including bond purchases and foreign investment — the yuan’s share leaps to 53%, overtaking China’s dollar trade for the first time in 2023
In a further milestone, the yuan briefly overtook the euro last year as the second-most used currency in global trade finance, albeit with 5.8% of the market versus the dollar’s 82%, according to SWIFT, the global messaging network banks use to settle international payments.
The yuan’s share of global currency reserves also reached its highest-ever level in the second quarter of the year at 2.4%, the International Monetary Fund (IMF) said in October.
While BRICS nations of the Global South recently explored alternatives to the dollar, including proposals for a shared currency, China has taken a more pragmatic approach, steadily building the yuan’s role in global trade while deliberately maintaining controls on currency exchange.
“China wants the yuan to become internationalized for trade — for the real economy,” Miguel Otero-Iglesias, senior fellow at the Elcano Royal Institute in Madrid, Spain, told DW. "It is less interested in the yuan becoming a financial currency.”
If Beijing allowed the yuan to be used in global financial markets for capital flows, investments and financial instruments, as well as for trade, Otero-Iglesias said it would reduce the Chinese Communist Party’s control over its domestic credit system.
“Beijing believes finance needs to be the slave and not master of the real economy,” he added.
China has leveraged its vast economic clout and the geopolitical fallout from the Ukraine war to secure favorable energy and commodity deals — including steep discounts from Russia — with an increasing share settled in yuan.
A second pillar of Beijing’s efforts to boost the use of the yuan is overseas lending, which embeds the Chinese currency in the debt structures of developing countries.
In major financial hubs like Singapore, London, and Frankfurt, yuan clearing hubs have been opened.
China has also signed currency swap deals with more than 50 countries.
They’re also a boon for countries that depend on Chinese trade and investment, like Argentina, Pakistan and Turkey.