China has unveiled a currency strategy challenging the global dominance of the U.S. dollar. It aims to use dollar weakness and rising geopolitical uncertainty as an opportunity to elevate the international standing of the yuan. Still, analysts say it is a long way from replacing the dollar because of capital controls and limits to opening its financial markets.
On the 4th (local time), CNN reported that China believes conditions are forming to weaken U.S. dominance in the global financial order and expand its own international influence. The value of the dollar has fallen to its lowest level in four years amid President Donald Trump's unpredictable economic policies and tariff pressure, while gold prices have surpassed $5,500 per ounce to a record high as geopolitical tensions rise. China sees this trend as a chance to highlight its own currency as an alternative.
The Communist Party's theoretical journal "Qiushi" recently carried remarks by President Xi Jinping. Xi emphasized building a powerful currency widely used in international trade and foreign exchange transactions and establishing a strong Central Bank system to support it. The vision to raise the yuan to the level of a global reserve currency has effectively been made official. Although the remarks were made in a closed-door meeting in 2024, authorities released them recently against the backdrop of changes in the international environment and a desire to strengthen China's standing.
China has already pursued the yuan's internationalization for more than a decade. It has continued institutional improvements by expanding foreign investor access to its bond and stock markets and streamlining cross-border payment procedures. Expanding trade with developing countries has also helped increase yuan use. In particular, yuan-settlement's share in trade with Russia—where dollar payments have become difficult because of Western sanctions—has surged to a record high.
Pan Gongsheng, governor of the People's Bank of China, the Central Bank, said last year that the yuan is the world's largest trade finance currency and the third-largest settlement currency, arguing for a shift from a dollar-centered unipolar system to a multipolar currency order. BRICS (Brazil, Russia, India, China, South Africa) countries discussing a new reserve currency vision is in the same vein. In response, President Trump warned that if dollar hegemony is threatened, a 100% tariff would be imposed.
Still, it is uncertain whether the yuan can practically replace the dollar. According to the International Monetary Fund (IMF), the dollar accounted for about 57% of global foreign exchange reserves last year, still overwhelming. The euro accounted for about 20%, while the yuan's share remained at about 2%. China is avoiding language about fully replacing the dollar while choosing a strategy to gradually expand the yuan's role.
Experts say China's strict controls on capital movement are the biggest obstacle to the yuan's internationalization. When capital flows are not free, it is difficult for global investors and Central Banks to hold the yuan as a large-scale reserve asset. A policy stance to manage the yuan's value low to maintain export competitiveness could also clash with expanding its role as a reserve currency, analysts say.
China is unlikely to shake dollar hegemony in the short term, but some predict the yuan's international use could gradually expand if U.S. policy uncertainty and de-dollarization trends continue. Analysts see it as an attempt by China to secure a position as the global financial order moves from a single currency center toward multipolarity.