CORRECTS-MNI INTERVIEW: Yuan Use To As Much As Double

China can realistically target doubling global use of the yuan over the next few years as it consolidates its place in an emerging multipolar global financial system, but capital controls should be eased only gradually and the country should maintain dollar reserves at  about their current USD3 trillion in order to underpin investor confidence, a prominent Chinese economist told MNI.

According to recent data , yuan usage peaked at 4.7% of global payments, while the currency has been used for as much as 6% of trade finance and 8.6% of foreign exchange transactions, together with accounting for up to 2.8% of international reserve holdings, former Bank of China chief researcher Zong Liang said in an interview. This adds up to about 5.5% in total, he said, arguing that it would be feasible for China to set a target of 5% to 10% for overall global use of the yuan in the coming years.

A full opening of China’s capital account, however, will take time given the risk of volatility in domestic financial markets, said Zong, now a senior fellow of the World Finance Forum, adding that for now the offshore market in Hong Kong with its CNH1 trillion liquidity pool will meet investor demand and could be expanded if necessary. (See MNI INTERVIEW: Oil Shock To Squeeze Dollar Liquidity In Asia)

As the U.S. dollar is likely to continue to play a key role in the international monetary system for a long period to come, China should in the meantime maintain its foreign exchange reserves above USD3 trillion as a cornerstone of investor confidence, Zong argued.

GLOBAL SYSTEM

But China will take the opportunity presented by the reshaping of the global monetary system to build itself into a major financial powerhouse during the 15th Five-Year Plan which runs until 2030, with the internationalisation of the yuan a strategic choice, he said.

The use of dollar systems to enforce U.S. sanctions has boosted awareness of the risks of relying on a single currency, said Zong, though he added that the size of American markets and the inertia of existing financial architecture means the greenback will continue to be a crucial part of an increasingly multipolar system, with the euro a key regional player and yuan use growing in the Asia-Pacific region and emerging markets.

Central bank digital currencies, stablecoins and gold will also have prominent roles in the new order, he said, pointing to continuing net central bank purchases of the precious metal in 2025.

Yuan usage should rise significantly among the countries of China’s Belt and Road plan, but patterns of trade and commodity transactions mean that growth is likely to be particularly pronounced in Southeast Asia and the Middle East, Zong said. China-ASEAN trade volume reached USD1.05 trillion in 2025, and at present, major oil-producing countries in the Middle East are already finding it convenient to settle 40% to 100% of their oil trade with China in the yuan. (See MNI: Chinese Yuan Seen Testing 6.60 Per Dollar In H2)

E-CNY

The further development of the digital yuan will be of great importance for further promoting use of the currency over the next five-year period, offering capabilities such as smart contracts for cross-border trade and automated settlement. It will also contribute to the development of new digital cross-border financial infrastructures, said Zong.

The mBridge cross-border payments system used for piloting e-CNY transactions will expand, with a focus on areas within the Belt and Road Initiative and RCEP. New variants, like "mBridge + industry”, will also be rolled out, Zong said, noting that cross-border transactions by mBridge in Hong Kong have already exceeded HKD50 billion, offering a 90% efficiency increase in delivering funds compared to SWIFT.

The digital yuan is also likely to be further integrated into the CIPS cross-border payment system, further reducing reliance on the dollar as an intermediary currency, he said.