MNI: Beijing Pushes Yuan's Global Role As U.S Dollar Falters
China is stepping up efforts to internationalise the yuan despite the many challenges facing the currency, aiming to boost its use in offshore investment and commodity pricing as global confidence in the U.S. dollar stumbles amid mounting American debt and rising protectionist trade policies, advisors and economists told MNI.
China’s manufacturers are growing their offshore investments, together with yuan-denominated sovereign-bond issuance, which will help deepen the yuan's overseas liquidity and expand the currency’s supply, said Liu Ying, fellow at the Chongyang Institute for Financial Studies at Renmin University of China, noting that U.S. borrowing and trade policies are accelerating de-dollarisation, creating an opening for the yuan.
The currency is also gaining broader acceptance in Belt and Road Initiative (BRI) countries, and Middle Eastern nations with closer trade and investment ties to China, she said. (See MNI INTERVIEW: Yuan To Emerge As Regional Reserve Currency) Within three years, it is expected to surpass the British pound as the world’s third-largest payment currency and could account for about 20% of global payments by 2035 if its share continues to rise by one percentage point annually, Liu added.
OFFSHORE INVESTMENT
Premier Li Qiang told the Indonesian business community last month that China would “expand overseas investments in an orderly manner,” reflecting Beijing’s desire to grow foreign investment. (See MNI: Panda Market Growth Seen Luring Brazil, Other EM Issuers)
Boosting developing countries' use of the yuan would solidify its influence, particularly as Asia looks for dollar alternatives, said Chen Fengying, former director of the Institute of World Economic Studies at the China Institutes of Contemporary International Relations, highlighting Beijing’s rising non-financial investment in BRI countries.
China's BRI investments reached USD33.69 billion in 2024, up 5.4% y/y and accounting for 23.4% of the country’s total non-financial outward direct investment, according to the Ministry of Commerce.
While de-dollarisation has opened a strategic window for the yuan, the shift toward a “tripolar” international monetary system alongside the dollar and euro will also pose significant challenges for the currency, Chen added, highlighting unresolved domestic issues, such as the lack of full capital account convertibility. Still, the global monetary system is likely to experience a prolonged period of turbulence over the next decade, she warned.
COMMODITY PRICING
Beijing has advanced the yuan’s use in the commodities market – a central pillar of its internationalisation strategy – particularly in energy and critical minerals, despite the dollar’s entrenched dominance and limitations in domestic pricing mechanisms, said Angela Cheng, chief macro strategist at China Galaxy International Securities (Hong Kong). China wants to expand the yuan’s use in energy further by promoting settlement via pilot programs such as yuan-denominated crude oil pricing with Saudi Arabia and Russia, she continued.
The digital yuan will also play a growing role across more commodity markets, Cheng added, pointing to Guangdong Province’s recent rollout of a digital yuan settlement service for bulk commodities, the first to achieve real-time synchronisation of transaction data and capital flows.
Liu added that the People’s Bank of China-led mBridge project, a multiple central bank digital currency platform, will enhance efficiency in yuan-denominated commodity trades, highlighting Saudi Arabia’s participation last year. Given China’s strong demand for commodities, there is significant potential to expand yuan pricing and settlement, Liu said, noting green energy as a promising area.
China is building a yuan-based commodity pricing system by linking CIPS, the digital yuan, and offshore markets, Liu said. The PBOC's currency swap deals worth CNY4.3 trillion with 42 countries are also paving the way for direct settlement without dollar intermediation, she added.
