Overview
China’s steady promotion of the renminbi’s role in global finance opens the door for wider adoption in international markets, bringing significant changes for Western businesses and global trade. Over the past three years, China has adopted new policies to expand the renminbi’s use in international finance and reduce risks of reliance on the US dollar. These policies are part of China’s dual circulation strategy and is advancing global de-dollarization at a faster rate than expected. China’s near-term goal is to transform the dollar-dominated global financial system to a multi-polar monetary system in which the renminbi is a competitive alternative. On this, China is making notable progress, including inroads with the Global South, but still has a long road ahead before the renminbi will be considered globally on par with the dollar or euro. For western businesses, the potential emergence of trading blocs adopting the renminbi as the preferred currency of trade risks higher transaction costs, more complex currency management, and competitive pressures in markets.
New Policies Lowering Barriers to Renminbi Use Internationally
China is linking its dual circulation strategy—which aims to strengthen domestic demand while deepening participation in global trade—to efforts to expand the renminbi’s international use by building out a financial ecosystem that supports cross-border trade, settlement and investment in renminbi. Beijing is currently taking advantage of depressed interest rates in China to encourage countries indebted to Beijing to convert dollar debts to renminbi, thereby locking borrowers in at a favorable cost of capital while capitalizing on increased risk perceptions over the dollar. This year, Kenya, Angola and Ethiopia have converted dollar debts to renminbi, and other African countries are considering doing the same. The world’s 78 poorest countries have over $65 billion in outstanding debt to China, giving Beijing a large potential pool to expand renminbi-denominated debt.
China is also creating more opportunities for foreign investors to buy renminbi-denominated bonds. Kazakhstan’s development bank sold a RMB 2 billion offshore bond. Indonesia raised 6 billion yuan through its first-ever “dim sum” bond, or a renminbi-denominated debt obligation outside mainland China. Hungary issued 5 billion in “panda” bonds, or renminbi-denominated bonds issued by non-Chinese entities within China. Bloomberg estimates that governments, banks and international bodies have issued a combined RMB 68 billion ($9.5 billion) of debt and loans this year as of October, double the total for all of 2024.
Beijing is working to increase use of renminbi in trade finance by developing a network of offshore clearing banks and swap lines. Chinese transactions are slowly switching from SWIFT for clearance to CIPS, the Chinese cross-border payment system launched in 2015. CIPS now processes more than RMB 40 trillion per quarter (about $5.6 trillion). According to Chinese customs data, about 30% of China’s trade and more than half of its cross-border transactions are now settled in renminbi, up from 14% in 2019 and less than 1% in 2010, respectively. Beijing has established bilateral currency swap lines with 32 central banks around the globe, creating a financial safety net to give trading partners the confidence to borrow and buy in renminbi.
Economists have assumed that China’s strict capital controls and the central bank’s tight hold on exchange rates would limit the appeal of the renminbi in international markets. In practice, Beijing is showing success in attracting international investors by selectively widening access to China’s onshore repurchase markets, allowing investors to use renminbi-denominated fixed-income assets as collateral for renminbi loans. Beijing broadened its bond connect program to allow more mainland Chinese investors to invest in Hong Kong’s fixed income market, connecting a significant pool of renminbi liquidity with offshore issuers of renminbi debt. Hong Kong is emerging as a hub for fixed income and currency trading, with the city’s financial markets supporting renminbi issuance and liquidity.
Reducing Economic Dependency on US Dollar While Advancing a Chinese Economic Sphere of Influence
China’s reliance on the US dollar, with the ongoing trade war and rising tensions with Washington, makes Beijing vulnerable to American economic coercion. The US has demonstrated repeatedly that it is willing to leverage access to the dollar and the dollar-dominated international financial system by imposing sanctions on foreign individuals and companies engaged in activities counter to US interests. There are hundreds, perhaps thousands, of Chinese companies designated under US sanctions programs related to Iran, Russia, Uyghur forced labor and the Chinese military-civilian fusion program. Beijing has strong incentives to reduce its vulnerabilities.
Even with these political and economic incentives driving change, China, let alone the world, is far from kicking dollar dependency. China is responsible for around a fifth of global economic activity. Its currency, however, is used in only 4% of international payments by value, compared to 50% for the dollar. Renminbi assets comprise around 2% of global currency reserves; dollar assets account for around 58%. But these may not be the most relevant statistics.
Beijing’s renewed urgency for de-dollarization has a geoeconomic component and is linked to its longer-term goal to become the dominant global economic power, focusing first on consolidating an economic sphere of influence in Asia and the Global South. China is benefiting from the current geopolitical context—with disruptive US trade policies and tariff regimes, primary and secondary economic sanctions, and scaled-back foreign development and humanitarian assistance—which is creating incentives for other countries to reduce their dollar dependencies and to look to China as a preferred trading partner.
China is pushing not just adoption of the renminbi but also embracing Chinese economic standards and political rules of the road—which are different from those embraced by western governments (the latter supporting fair trade, transparency, human and labor rights and political behavior aligned with post-World War II norms of respecting the founding principles of the United Nations, sovereignty and international borders, etc.). China is rallying the BRICS group of countries and the Global South more broadly to align with China’s trade and political policies and oppose perceived Western domination.
Here, China is making progress. The renminbi is reportedly already used in 50% of intra-BRICS trade. Looking at Brazil (the “B” in BRICS), in 2024, 40% of Brazil’s trade with China was conducted in renminbi, with China as its top trading partner and the largest destination for Brazil's exports and the largest supplier for its imports. In 2023, 95% of Brazil’s foreign trade was conducted in dollars. Brazil does not support Western sanctions on Russia, considering them illegal as they are not backed by UN sanctions. While it would be a stretch to state that Brazil is now in China’s sphere of influence, Brazil is best categorized as non-aligned but growing more dependent on China.
Implications for Western Businesses
The international financial system has benefited from the US dollar as the preeminent reserve currency, providing stability to financial markets for raising capital and managing debt. Having multiple, peer-level reserve currencies could also offer the same, or added benefits, but moving from one system to another often is associated with widespread disruptions.
While the US dollar remains dominant globally, international adoption of the renminbi is underway, and the period of change presents a range of potential risks for Western businesses. As China consolidates its trade position with the Global South, demand for US dollar assets may decrease as China is successful at shifting trade settlement to the renminbi on increasingly larger scales. Western businesses operating in dollars could experience higher borrowing costs, reduced foreign investment and potentially increased volatility in exchange rates. Exporters may face pressure to accept payment in renminbi, presenting new foreign exchange risks and hedging costs. If buyers and suppliers prefer renminbi pricing, Western firms could lose market share to Chinese competitors who can transact without dollar conversion costs. Renminbi-exclusive supply chains could emerge, creating barriers for Western firms to access critical goods and services.
As China's role in the global economy grows and the international use of the renminbi increases in Chinese-influence trade blocs, Western businesses should anticipate facing higher trade barriers, complex compliance requirements and political risk.
