How China Is Trying to Globalize the Yuan Without Opening the Door

China is the world's largest trading nation and its second-largest economy, yet its currency accounts for only a small share of global reserves and payments. For more than 15 years, Beijing has pursued yuan internationalization, the effort to make the renminbi a widely used currency for trade, investment and reserves. The strategy has taken on new urgency since 2022, when Western sanctions on Russia showed how exposure to dollar and euro systems could become a vulnerability. China's approach is distinctive: it is trying to expand the yuan's global role while keeping tight control over capital flows. Increasingly, it is using digital infrastructure to square that circle.

The building blocks

China's internationalization strategy relies on several tools built over the past decade:

• CIPS, the Cross-Border Interbank Payment System launched in 2015, which processes yuan payments between banks and offers an alternative to Western-dominated channels for messaging and settlement.
• Swap lines between the People's Bank of China and dozens of foreign central banks, which provide yuan liquidity to partners and support trade settlement.
• Offshore yuan centers, especially Hong Kong, where the currency trades more freely and where yuan-denominated bonds are issued.
• Trade settlement agreements with partners such as Russia, Brazil and several Gulf and Asian states to use local currencies instead of dollars.

These tools have produced measurable results. The share of China's own cross-border trade and payments settled in yuan has risen substantially in recent years. Trade between China and Russia is now largely settled in yuan and rubles, a shift driven by sanctions. The yuan has also become one of the most used currencies in trade finance, according to SWIFT data.

The ceiling

Despite this progress, the yuan's global role remains limited. It holds only around 2 percent of global reserves, and its share of international payments tracked by SWIFT remains in the low single digits. The main reason is the capital account. International investors and central banks want to be able to move money in and out of a currency freely, especially in a crisis. China's capital controls, which limit those movements, make the yuan less attractive as a reserve or investment currency.

Other factors matter too. Investors weigh the rule of law, the predictability of policy and the depth of financial markets. China's bond market is large, but foreign participation remains modest, and episodes such as the 2015 stock market turmoil and subsequent tightening of capital controls have left a lasting impression on international investors.

Beijing wants the yuan to travel the world while keeping one hand on the door. That is the central tension of its currency strategy.

Geopolitics cuts both ways for the yuan. Western sanctions on Russia gave some governments a reason to diversify away from the dollar and euro, but they also showed the risks of dependence on any single foreign currency. Countries that fear exposure to Washington may equally hesitate to become dependent on Beijing. For many emerging markets, the preferred strategy is not to swap one reserve currency for another but to spread their bets, holding more gold, using local currencies in bilateral trade where possible and keeping options open.

Russia is the clearest example of what heavy yuan dependence looks like. Since 2022, the yuan has become the main foreign currency on the Moscow exchange, and Russian companies and the government have issued yuan-denominated bonds. But Russian businesses have also reported difficulties with payments as Chinese banks, wary of secondary sanctions, became more cautious. The experience shows that even in a close partnership, the yuan's usefulness is limited by the global reach of the dollar system.

The digital yuan

China's central bank digital currency, the e-CNY, has been in pilot programs since 2020 and has the largest trial of any major economy's CBDC. Its domestic use has grown but remains small compared with the dominant private mobile payment platforms. Internationally, China has promoted the e-CNY for cross-border use, including through the mBridge project, a platform for wholesale cross-border payments between central banks developed with Hong Kong, Thailand, the UAE and later Saudi Arabia. The Bank for International Settlements, which helped develop mBridge, stepped back from the project in 2024.

In June, the People's Bank of China announced plans for an international operations center for the digital yuan in Shanghai, signaling that cross-border use of the e-CNY is a priority. Digital infrastructure could allow China to expand yuan settlement with partners while retaining detailed oversight of transactions, a combination that is harder to achieve with traditional correspondent banking.

Stablecoins and Hong Kong

The rise of dollar stablecoins has added a new dimension. With the US moving to regulate dollar stablecoins through the GENIUS Act, signed in July, Chinese policymakers and commentators have debated whether yuan-linked stablecoins could help counter the spread of digital dollars. Hong Kong's new stablecoin licensing regime took effect in August, and there has been speculation about offshore yuan stablecoins issued under its framework. Mainland regulators have been cautious, however, and crypto trading remains banned on the mainland.

This tension reflects the broader dilemma. A freely transferable yuan stablecoin would be difficult to reconcile with capital controls. A tightly controlled one would offer fewer advantages to users. How Beijing and Hong Kong resolve this question will say much about the future of the yuan's digital strategy.

Assessing the strategy

China's efforts have made the yuan more important in specific corridors, particularly trade with Russia, commodity-exporting partners and countries in its economic orbit. They have created infrastructure that could reduce China's exposure to Western sanctions. But they have not turned the yuan into a true global rival to the dollar or even the euro.

That may not be Beijing's main aim. A realistic goal is a currency that is sufficiently used in trade and finance to protect China from external pressure, not one that dominates global reserves. On that narrower measure, the strategy is making steady progress, and digital tools are likely to accelerate it. Nothing here should be read as investment advice.