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The Chinese currency, the yuan, is gradually challenging the dominance of the US dollar in international trade.
The question of the international role of the yuan is increasingly taking center stage in the economic and geopolitical debate. In a context characterized by high budget and trade deficits in the United States, concerns about the sustainability of American public debt and repeated criticism of the independence of the Federal Reserve, the attractiveness of the dollar is showing signs of weakening. In parallel, China aims to strengthen the international position of its currency. Is this dynamic enough to call into question the hegemony of the dollar in the world economy? The available data suggest caution.
A gradual, but limited, internationalization of the yuan
Included in the International Monetary Fund's currency basket since 2015, the yuan has gained more visibility on the international monetary scene. China now settles an increasing portion of its trade in the national currency, estimated at around 25% of foreign trade. This development reflects both China's growing trade weight and Beijing's desire to reduce its dependence on the dollar in international transactions.
The development of China's cross-border interbank payments system, the use of the yuan for some energy imports, and the creation of a financial ecosystem around the digital yuan are all part of this strategy. The objective is twofold: to facilitate trade exchanges and to strengthen China's monetary and financial autonomy in an international monetary order dominated by the dollar.
A still marginal presence in world flows
Despite these advances, the yuan remains a secondary currency on a global scale. International payments and transactions denominated in yuan represent about 4 percent of world exchanges. In the foreign exchange reserves of central banks, the weight of the Chinese currency reaches about 2 percent and has not increased since 2022.
These indicators reflect a structural reality: the internationalization of the yuan is progressing, but it has not crossed a critical threshold. The yuan lags far behind the dollar, but also the euro, in terms of use, liquidity, and institutional trust.
Deliberate restrictions by Chinese authorities
The main limitation of the yuan's international status is related to China's own economic policy choices. The currency is not fully convertible, and controls on capital movements remain strict, with the aim of maintaining domestic financial stability. Furthermore, the exchange rate is tightly controlled by the People's Bank of China, which fuels the perception of possible manipulation for trade competitiveness purposes.
These characteristics hinder the adoption of the yuan as a reserve currency or as a reference currency for large-scale invoicing. International investors favor currencies backed by deep, open, and legally predictable financial markets, conditions that China is not ready to fully meet at this stage.
Dollar dominance remains stable, despite gradual weakening
The questioning of the dollar is more related to a process of relative erosion than to a replacement scenario. The experience of recent decades shows that even the euro, supported by a large economic and financial area, failed to sustainably threaten the dominance of the dollar, especially after the sovereign debt crisis in Europe.
The dollar's status rests on a number of structural factors: the depth of US financial markets, the central role of Treasury bonds as a risk-free asset, institutional trust and international acceptance. None of these pillars find an equivalent in the case of the yuan today.
The yuan is advancing in the world economy, but its internationalization remains consciously limited by Beijing's strategic choices. As long as China favors domestic stability, capital controls, and an export-led growth model, its currency cannot claim the status of the dominant global currency. The dollar's dominance may gradually fade, but its replacement by the yuan is not a realistic scenario in the medium term. /Adapted from 20minutes /
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