The Strategic Case for Allocating to Yuan-Denominated Assets in a De-Dollarizing World

The global monetary landscape is undergoing a quiet but profound transformation. As the U.S. dollar’s hegemony faces growing challenges, the Chinese yuan (CNY) is emerging as a strategic asset class for investors seeking to hedge against de-dollarization risks. This shift is not merely speculative—it is driven by a confluence of geopolitical and macroeconomic forces that are reshaping currency dynamics.

Geopolitical Tailwinds and Macroeconomic Resilience

China’s proactive management of the yuan has been a cornerstone of its strategy to counter external pressures. State commercial banks have aggressively accumulated foreign assets, with a $47 billion net addition in June 2025 alone, signaling a deliberate effort to resist depreciation and bolster the yuan’s value [1]. This intervention has been critical in stabilizing the currency during periods of heightened U.S.-China trade tensions. For instance, despite a spike in depreciation pressure in April 2025 due to escalating tariffs, the People’s Bank of China (PBOC) used its daily reference rate mechanism to restore equilibrium, bringing the yuan back to pre-trade-war levels [4].

The yuan’s resilience is further amplified by global uncertainties surrounding the U.S. dollar. Expectations of Federal Reserve rate cuts and potential U.S. recessionary pressures have eroded confidence in the greenback, creating a vacuum that the yuan is increasingly filling [3]. By August 2025, the USD/CNY exchange rate had appreciated to 7.1196, reflecting a 0.85% gain over the prior month [2]. This trend underscores the yuan’s growing appeal as a safer alternative in a multipolar world.

De-Dollarization and the Yuan’s Global Push

China’s efforts to internationalize the yuan are accelerating. Beijing has expanded yuan-based trade settlements, relaxed access for foreign institutional investors, and invested heavily in digital yuan infrastructure [3]. These initiatives are part of a broader de-dollarization trend across Asia, where Chinese banks are increasingly using the yuan for cross-border lending and commodity transactions. While challenges such as capital controls and limited liquidity in yuan-denominated assets persist, the yuan’s global share in payments reached 2.89% in May 2025—a modest but consistent rise [3].

Strategic Implications for Investors

For investors, the case for allocating to yuan-denominated assets is compelling. First, the yuan’s appreciation trajectory offers a hedge against dollar depreciation risks. Second, China’s structural reforms—such as expanding access to its bond markets and promoting digital yuan adoption—enhance the currency’s utility and liquidity. Third, the yuan’s role in de-dollarization creates long-term value, particularly in regions where China is deepening economic ties.

However, prudence is required. Capital controls and geopolitical risks—such as U.S. sanctions or trade disputes—remain significant headwinds. Yet, these challenges are being mitigated by the PBOC’s stability-focused interventions and the yuan’s growing acceptance in global trade.

Conclusion

The yuan’s ascent is not a fleeting phenomenon but a calculated response to a shifting global order. As de-dollarization gains momentum, investors who align with this trend may find yuan-denominated assets to be a strategic cornerstone in their portfolios. The key lies in balancing exposure to the yuan’s growth potential with a nuanced understanding of its risks—a calculus that rewards those who act with foresight.

Source:
[1] The Case that China is Now Actively Resisting Pressure [https://www.cfr.org/blog/case-china-now-actively-resisting-pressure-yuan-appreciate]
[2] Chinese Yuan - Quote - Chart - Historical Data - News [https://tradingeconomics.com/china/currency]
[3] China doubles down on promoting yuan as confidence in [https://www.cnbc.com/2025/06/25/china-promotes-yuan-as-dollar-confidence-falters.html]
[4] Chinese yuan at a glance: There and back again - ING Think [https://think.ing.com/articles/chinese-yuan-at-a-glance-there-and-back-again/]