China Accelerates Shift Away from US Dollar Amid Yuan Surge

China Seizes Opportunity as US Dollar Weakens

Beijing is making bold moves to boost the international profile of the yuan, leveraging recent weaknesses in the US dollar and ongoing global economic uncertainties. In 2025, a confluence of factors—including a 7% depreciation of the dollar since January—has presented China with what officials view as an unprecedented opportunity to push forward de-dollarization efforts and promote the renminbi as a viable global currency.

Since early 2025, the yuan has reached its strongest levels since late 2024, driven by an uptick in both foreign portfolio investment and the willingness of numerous governments to reconsider their reliance on the dollar for trade and reserves. The fall in the dollar’s value is traced by market watchers to unpredictable US monetary and trade policy, swelling federal deficits, and heightened debate over the future of American economic leadership.

Historical Context: From Dollar Dominance to RMB Ambitions

The US dollar has reigned as the world’s reserve currency since the Bretton Woods Agreement of 1944, providing the bedrock for international finance and global trade. For decades, over 60% of central bank reserves have been held in dollars, and commodities such as oil have been priced and settled in the greenback. This system afforded the US considerable influence over global monetary policy and trade settlement.

China’s official interest in challenging dollar supremacy dates back to the 2008 global financial crisis, which highlighted systemic risks associated with dollar concentration. In 2016, the International Monetary Fund elevated the yuan to the status of a reserve currency by including it in the Special Drawing Rights basket. Since then, Beijing has steadily rolled out policy initiatives and market reforms to encourage international yuan use, but substantive gains remained elusive until the past year.

Yuan’s 2025 Surge: Drivers and Reactions

This year, a perfect storm has materialized. US fiscal expansion alongside contentious trade policies have nervous global investors looking to rebalance portfolios and reduce exposure to dollar-denominated assets. Regional banks, sovereign wealth funds, and private investors have responded with surging demand for Chinese assets, particularly government bonds, which offer relatively attractive yields and perceived stability.

The People’s Bank of China has maintained a careful approach, guiding the yuan without allowing excessive appreciation that might threaten export competitiveness. The central bank’s daily fixings and a tightly managed exchange rate regime have reassured overseas investors, contributing to yuan’s resilience—even as the US unleashed multiple rounds of import tariffs and other trade restrictions in 2025.

On October 17, the exchange rate hovered at 7.12 yuan to the dollar, only marginally softer than a month earlier. This has been interpreted as a sign of underlying confidence, with the government’s currency policy serving as a subtle signal to international partners: the yuan is strong, predictable, and increasingly open for business.

De-Dollarization: Strategy and Execution

Chinese policymakers recognize that a world less reliant on the dollar offers greater strategic autonomy. Their response has been two-fold: internally, they have accelerated reforms of domestic financial markets to absorb foreign capital more efficiently; externally, they have signed new trade agreements encouraging use of the yuan for settlement.

Notably, China’s Belt and Road Initiative has become a diplomatic conduit for currency agreements, with over 30 partner countries now conducting at least part of their trade in yuan. Energy deals—especially those with Russia, the Middle East, and Southeast Asia—are increasingly structured in renminbi as China ramps up green technology investment and seeks raw materials to fuel its renewable energy transition.

In Africa and Latin America, Chinese banks are expanding yuan-denominated lending for infrastructure projects, while fintech partnerships facilitate seamless cross-border yuan payments. These developments align with China’s vision: to establish the renminbi as the currency of choice in new growth markets and economic corridors.

Economic Impact: Domestic and Global Dimensions

For China, greater yuan internationalization promises multiple benefits. China can reduce exchange rate risk and shield itself from the effects of US financial sanctions or abrupt capital outflows. Correspondingly, expanding the yuan’s offshore liquidity pools—especially in Hong Kong, Singapore, and London—provides a partial buffer against future shocks.

The economic impact is not limited to Beijing. Countries seeking insulation from currency volatility view the yuan as a useful hedge, especially amid the dollar’s unpredictability this year. Central banks from emerging markets are diversifying their reserves, and some have announced plans to increase allocations to the yuan.

Multinational corporations are also adapting. Cross-border settlement in yuan can streamline supply chains, lower transaction costs, and reduce dependency on both the dollar and euro. These advantages are especially pronounced in sectors—such as energy, technology, and manufacturing—where China is a dominant player.

Regional Comparisons: Asia Leads, Others Follow

China’s drive to internationalize its currency finds widespread resonance in East Asia, where the yuan already serves as a regional anchor. As China is the leading trading partner for most of its neighbors, transactions in yuan greatly simplify business for corporations and governments alike.

Japanese and South Korean companies—once reticent to move away from the dollar—are now increasingly settling deals in yuan. Meanwhile, ASEAN economies including Thailand, Malaysia, and Indonesia have expanded their use of the renminbi in bilateral trade.

Elsewhere, progress is slower but steady. Many European and Middle Eastern states remain cautious, often splitting foreign reserves between dollars, euros, and, to a lesser extent, yuan. For oil exporters like Saudi Arabia, yuan invoicing for crude is gaining traction as Beijing intensifies efforts to position its currency as the energy market’s next reference.

Challenges Remain for Full Yuan Globalization

Despite these strides, a number of obstacles limit the renminbi’s expansion. Chief among them is capital account convertibility. While authorities have loosened some restrictions on capital flows, China’s regulatory environment remains complex, posing challenges for institutional investors seeking rapid entry or exit.

Another barrier is the yuan’s limited role in the global derivatives market, where the dollar accounts for a lion’s share of trading volumes. Foreign businesses still face hedging and liquidity constraints, although ongoing reforms in Shanghai and Shenzhen seek to ease these concerns.

Additionally, some governments are wary of deepening financial entanglement with China, mindful of potential political strings or sudden regulatory changes. Skeptics highlight previous episodes when Beijing intervened sharply in currency markets, raising doubts about long-term transparency and rule of law.

The Road Ahead: Reserve Currency Shifts and Global Finance

As China forges ahead with de-dollarization, observers expect a gradual but unmistakable shift in the landscape of international finance. The yuan, once seen as a marginal reserve currency, is now a contender with tangible traction in both developed and developing markets.

While it is unlikely that the US dollar will be dethroned in the near term, the balance of power is already evolving. Currency diversification is gaining institutional momentum, as central banks and corporate treasuries across the world weigh the risks and rewards of exposure to a single reserve asset.

Chinese leaders see this moment as both a validation of past reforms and a catalyst for strategic expansion. Should current trends persist, the next five years could witness significant change in how global trade is denominated and how countries manage liquidity, risk, and growth.

Market volatility and geopolitical competition will undoubtedly test the yuan’s capacity to weather external shocks, but the foundation for broader international use has never appeared stronger. As debate intensifies over the future of the international monetary system, one conclusion is clear: China’s push to promote the yuan is rapidly reshaping the world’s financial architecture—and shows no sign of slowing.