China Pushes Yuan as Global Currency to Reduce Dollar Reliance

China is intensifying its efforts to promote the yuan as a widely used global currency, as announced by the Governor of the People’s Bank of China (PBC). This initiative is part of a broader strategy to reduce reliance on the U.S. dollar and enhance China's presence in international trade and financial markets. By increasing the yuan's international use, China aims to bolster its economic influence globally.

Economist Hoe Ee Khor from the Asean+3 Macroeconomic Research Office suggests that the yuan has the potential to rival the U.S. dollar as a global currency, provided it becomes more accessible and convertible. Khor believes that the era of U.S. financial dominance is waning, and the yuan, already used in cross-border payments, could fill the gap if China opens its markets to foreign investors.

Khor highlights China’s bond and stock market “connect” schemes with China Hong Kong as a promising model for promoting the yuan’s international use. However, he stresses that broader access and freely tradable yuan-backed assets are essential for global adoption. Without these changes, the yuan's international acceptance remains limited.

Khor also mentioned Asia’s $240 billion Chiang Mai Initiative, a financial safety net designed to reduce regional dependence on the dollar during crises. Although this initiative has not been utilized yet, it reflects growing economic independence in Asia. Despite U.S. tariffs and global disruptions, Khor suggests that East Asia will adapt by increasing intra-regional trade and strengthening ties beyond American influence.

The PBC has taken several steps to manage liquidity and support the economy. Recently, the PBC announced a 7-day 135-billion-yuan reverse repo at an interest rate of 1.40 percent. This tool is used by central banks to manage liquidity by purchasing securities from commercial banks with an agreement to resell them in the future. Additionally, China cut its key lending rates by 10 basis points, providing room for monetary easing aimed at boosting the economy. This move came as the yuan strengthened and trade tensions eased, allowing for a more accommodative monetary policy.

The yuan's recent performance has been influenced by various factors, including corporate seasonal demand for dollars and changes in benchmark lending rates. Despite these fluctuations, the yuan has shown resilience, and China's efforts to promote its use globally continue. The country's top economic planner has approved fixed-asset investment projects worth 573.7 billion yuan, further demonstrating its commitment to economic growth and stability.

China has also allocated significant funds for urban renewal during the 14th Five-Year Plan period, earmarking approximately 159.4 billion yuan. This investment is part of a broader strategy to modernize infrastructure and support economic development. The country's efforts to promote the yuan as a global currency are likely to continue, as it seeks to reduce its reliance on the US dollar and enhance its economic influence on the global stage.