New Currency System. Part IV: The Yuan Gains Momentum

China’s share of global GDP calculated at purchasing power parity (20%) and of global merchandise trade (12.5%) is significantly higher than the yuan’s share in international foreign exchange reserves (2.0%) and international settlements (2.85%).

The gap between China’s contribution to the real sector of the global economy and the international use of the yuan indicates substantial potential for increasing the global significance of the Chinese currency. The main obstacle to realizing this potential is China’s dependence on the dollar‑centric global financial architecture.

The United States has an extraordinary interest in maintaining the dominant position of the dollar in the global monetary system. This objective has been present, directly or indirectly, on the agenda of all American presidents. The rhetoric of the current head of the White House is no exception. China’s attempts to challenge U.S. dominance in the global monetary and financial sphere cause serious concern in Washington.

At present, China is the primary country consistently reducing its holdings of U.S. Treasury bonds as a key reserve asset. From March 2025 to March 2026, the People’s Bank of China (PBOC) reduced its official holdings of Treasuries from $765.4 billion to $652.3 billion. Thus, over the year, China’s official dollar reserves decreased by $113.1 billion.

For half a century, Japan had been the largest foreign investor in U.S. government debt securities. At the height of the global financial crisis in 2008, China sharply increased its dollar reserves and became the world’s largest holder of U.S. Treasury bonds. In September 2008, China’s investments amounted to $618 billion. By July 2011, this figure had more than doubled to $1.315 trillion. 

Until May 2019, China ranked first in the world in holdings of U.S. Treasury securities, but in June it once again ceded the top position to Japan. In January 2025, China fell to third place, уступив it to the United Kingdom. The UK has been actively increasing its dollar reserves, apparently fearing further depreciation of the pound sterling.

It should be noted that trading volumes of the Chinese yuan on the global foreign exchange market have nearly reached those of the British currency. Between 2007 and 2025, the yuan’s share increased from 0.5% to 8.8%, while the pound sterling’s share decreased from 14.9% to 10%. It is quite possible that in the near future the yuan may displace the pound in global currency trading.

The yuan is also steadily gaining ground in international settlements, though so far mainly on a bilateral basis. In March 2023, China reached an agreement with Brazil to use the Chinese yuan and the Brazilian real instead of the U.S. dollar for all trade settlements between the two countries. As part of this agreement, in May 2025 the PBOC and the Central Bank of Brazil extended their bilateral currency swap agreement worth 190 billion yuan / 157 billion reais ($27.69 billion) for five years with the possibility of further extension.

The yuan is also actively used in bilateral settlements with Russia, accounting for about 40% of Russian‑Chinese foreign trade turnover.

Overall, in the currency structure of China’s non‑bank sector foreign economic activity settlements, the share of the U.S. dollar has been steadily declining. In the structure of international receipts across all balance‑of‑payments items, the dollar’s share decreased from 72.4% in 2018 to 46.7% in 2025, while the yuan’s share increased from 21.7% to 49.5%.

In the structure of China’s international payments, the dollar’s share fell from 64.4% to 40.5%, while the yuan’s share rose from 25.0% to 53.9%. It should be noted that while the dollar is often used for trade not involving the United States, the Chinese yuan is used almost exclusively for trade involving China.

The issuance of Chinese bonds on international financial markets is another way of moving away from the dollar, although such issuances represent a very small share compared to domestic Chinese bonds, which totaled the equivalent of $24.6 trillion at the end of May 2026 — the second largest bond market in the world after that of the United States.

Currently, the following types of yuan‑denominated bonds are issued by non‑residents: dim sum bonds (offshore bonds issued in Hong Kong), mulan bonds (denominated in Special Drawing Rights and issued by the World Bank), BRI bonds (Belt and Road Initiative bonds), and panda bonds (issued by foreign entities in mainland China).

The first panda bonds were issued in 2005 by the International Finance Corporation and the Asian Development Bank, and their volume has gradually increased. The number of newly issued panda bonds rose from 43 in 2020 to 109 in 2024, while the total issuance value increased from 58.65 billion yuan to 194.8 billion yuan over the same period. Offshore dim sum bond sales in 2024 also increased by 34% compared to 2023, reaching 729.3 billion yuan ($102 billion), due, first, to cheaper yuan financing compared to dollar financing and, second, to issuers’ and borrowers’ desire to hedge currency risks. Meanwhile, Chinese international bonds accounted for only 1.1% of the global international bond market in 2024.

Insufficient investor demand for Chinese foreign bonds is due to differences in yield levels. In the second half of 2024, both core inflation in the United States and the Harmonized Index of Consumer Prices in the eurozone reached year‑over‑year lows. Meanwhile, interest rates in the U.S. dollar and euro markets remained volatile at relatively high levels. By contrast, China’s Consumer Price Index remained generally stable, with year‑over‑year monthly changes ranging from 0.1% to 0.6%. Yuan interest rates continued to decline gradually. At the same time, the yield spread between yuan‑ and dollar‑denominated bonds fluctuated between 170 and 300 basis points.

It is evident that the international role of the Chinese yuan will continue to grow, as Chinese authorities insist on its broader international use, while Western sanctions against Russia and the low cost of funding potentially increase its attractiveness for borrowers.

Author: Doctor of Economics, Professor of the Department of World Economy and World Finance, Financial University under the Government of the Russian Federation Alexey Vladimirovich Kuznetsov.