China accelerates yuan push as US dollar dominance faces growing challenges

As global uncertainty surrounding the US dollar rises, China is ramping up efforts to promote the yuan (RMB) as a viable alternative in global trade, investment, and reserves. The latest policy moves are part of Beijing’s long-term push for “yuan internationalisation” and come at a moment when central banks, investors, and governments are actively rethinking their exposure to the greenback. With the dollar facing multiple headwinds, ranging from erratic US policy under President Donald Trump to mounting geopolitical tensions and market volatility, China’s leadership is eyeing the opportunity to position its currency more centrally in the global financial system.

A multi-pronged strategy to globalise the yuan

In recent months, China has launched a series of targeted measures aimed at increasing the use of the yuan internationally. These include expanding foreign access to domestic financial markets, allowing qualified institutional investors to trade more futures and options contracts, and launching initiatives to facilitate cross-border yuan transactions.

Three major Chinese commodity exchanges—Shanghai, Dalian, and Zhengzhou—recently added 16 new derivatives contracts for foreign institutional investors, covering key commodities like rubber, lead, and tin. Meanwhile, the Shanghai Futures Exchange is working on a proposal to allow foreign currencies as collateral for yuan-settled trades.

China’s central bank, the People’s Bank of China (PBOC), also plans to set up an international centre for digital yuan operations in Shanghai. This would support broader usage of China’s digital currency, which has been gradually introduced as an alternative to physical cash.

Further steps include easing restrictions on foreign participation in ETF options trading and waiving certain fees for global institutions accessing Chinese bond markets. In parallel, China’s Cross-Border Interbank Payment System (CIPS)—its alternative to SWIFT (Society for Worldwide Interbank Financial Telecommunications)—has been expanding its reach, with more offshore yuan clearing centres and growing acceptance in emerging markets.

Yuan gains appeal, but obstacles remain

Despite growing enthusiasm, structural hurdles continue to limit the yuan’s global appeal. China maintains capital controls that restrict the free flow of money in and out of the country, and its financial markets are not as deep or transparent as those in the US. As of May, the yuan accounted for just 2.89 per cent of global payments, down from the previous month, according to SWIFT. It ranks sixth in international currency usage, far behind the US dollar’s 48.46 per cent and the euro’s 23.56 per cent.

Moreover, in terms of foreign exchange reserves, the yuan currently accounts for only 2.2 per cent of global holdings. That said, its use in China’s own cross-border transactions has overtaken the dollar, with yuan settlement in goods trade reaching 26 per cent in May and forecasted to hit 40 per cent by year-end, according to analysts.

Global reserve managers shift away from the dollar

According to a new report by the Official Monetary and Financial Institutions Forum (OMFIF), global central banks are increasingly diversifying away from the dollar. The survey of 75 central banks managing $5 trillion showed that one-third plan to increase gold holdings over the next two years, while interest in the dollar has dropped sharply. The dollar fell to seventh place in the ranking of preferred reserve assets, with 70 per cent of central banks citing the US political climate as a deterrent.

The euro and yuan are seen as the biggest beneficiaries. A net 16 per cent of respondents said they plan to increase euro holdings in the near term, while 30 per cent expect to increase yuan reserves over the next decade, potentially tripling its share to around 6 per cent.

Europe’s rising role and yuan’s long-term potential

While the euro is gaining short-term favour, the yuan is emerging as a longer-term contender. Several central banks and sovereign wealth funds are now revisiting their reserve compositions, considering diversification not just for yield but for geopolitical risk mitigation.

China’s push for de-dollarisation aligns with a broader trend in Asia, where countries are reducing their reliance on the US dollar amid shifting trade alliances and regional economic integration. China has promoted bilateral trade settlements in yuan, especially in energy and commodities, and subsidised loans in offshore yuan to encourage adoption.

Despite economic headwinds such as slower growth and deflationary pressures, analysts say continued reform and financial market liberalisation could gradually enhance the yuan’s credibility. While it may not dethrone the dollar any time soon, the Chinese currency is steadily carving out a more prominent place in the evolving global monetary system.