When US President Donald Trump fired the opening salvoes of his country’s trade war with China in his first term, Beijing’s currency was on the front lines.
By 2019, the yuan had tumbled past the benchmark value of seven per US dollar for the first time in over a decade, rattling investors and fuelling speculation that Beijing was allowing depreciation to mitigate the effects of tariffs.
As Washington and Beijing began to lock horns once again, with Trump’s second White House foray bringing with it a “trade war 2.0”, these concerns resurfaced. Yet this time feels different, as the yuan has largely held steady against the US dollar, even strengthening on several occasions.
Unlike the roughly 14.5 per cent weakening against the US dollar it underwent from April 2018 to September 2019, the yuan has so far withstood depreciation pressures.
“I think it’s indeed fair to say that the yuan has become stronger in global markets compared to 10 years ago ... as a result of a number of reforms that have made the yuan more market-driven and the Chinese capital account more open,” said Francoise Huang, senior economist for Asia-Pacific at Allianz Trade.
While the yuan has not moved the same way it did during the first iteration of the trade war, she added, “the global and US policy environments are very different this time around.”
Despite a brief dip in early April – when Trump unveiled sweeping “reciprocal tariffs” against nearly every US trading partner – the Chinese currency quickly rebounded and has since trended stronger, with the offshore yuan gaining about 3 per cent against the US dollar this year so far.
As the yuan has shown resilience this year despite the ever-simmering tensions between the two superpowers, analysts said the currency was entering a new era, increasingly charting its own course as its use rises in global settlements. However, they added, it still has a long way to go before being considered a global reserve currency on par with the US dollar.
“We reiterate that the yuan’s effective exchange rate is beginning to move on a more ‘independent path’, meaning its appreciation is no longer solely driven by a weaker US dollar,” Huatai Securities said in a research note last week.
They said the yuan began an “independent” appreciation trend against a basket of currencies after the first round of US-China trade talks in Geneva in May. Even as the US dollar index rebounded 2 per cent after July, the yuan still rose 2.2 per cent against the basket – a sign it was no longer tracking the American currency alone.
“In the medium- to long-term, the yuan still has a solid foundation for appreciation and clear room to rise,” the note said, citing a persistent slide in the US dollar, amid mounting concerns over its government’s fiscal sustainability and the independence of the US Federal Reserve.
“The yuan’s appreciation is expected to trigger a revaluation of Chinese assets,” it stressed. “A stronger currency will likely boost demand for yuan-denominated assets, particularly for overseas Chinese assets.”
That momentum was buoyed when the US Federal Reserve resumed its rate-cutting cycle in September, delivering its second reduction of the year last week.
However, its chair, Jerome Powell, cautioned that another cut in December “is not a foregone conclusion”, citing divisions within the central bank and a lack of federal government data amid the ongoing shutdown.
Beyond its resilience in exchange rates, experts also noted the yuan had made more progress towards becoming a true global currency compared with the last round of the trade war, with Beijing taking steps to further internationalise its currency and reduce its reliance on the US dollar.
Yuan-denominated trade settlements reached “unprecedented levels” this year according to a report published by Allianz Trade last week, which attributed the change to structural shifts in both commodity markets and hi-tech supply chains that play to China’s comparative strengths.
The report added that China had leveraged its position as the world’s largest raw-material importer to price strategic goods in yuan, exemplified by the yuan-denominated crude oil futures launched on the Shanghai International Energy Exchange in 2018. By 2020, it had become the world’s third-largest oil futures market and established the “Shanghai Oil” benchmark.
Looking ahead, the report noted that battery metals and electric vehicle (EV) supply chains also presented “a compelling opportunity” for yuan pricing.
Data from the Society for Worldwide Interbank Financial Telecommunication, the primary messaging network for international settlements, quantifies the success of those efforts. The yuan’s proportion of global payments has risen from 2.07 per cent at the end of 2018 to 3.17 per cent in September, after peaking at 4.74 per cent in July 2024.
The US dollar, by comparison, maintained its distant lead throughout that period, with a 47.79 per cent share as of September.
“Settling transactions in [yuan] can help reduce currency risk for Chinese exporters while offering foreign buyers access to [the yuan’s] financing instruments,” the Allianz Trade report said, noting that China had denominated more than 40 per cent of settlements in its own currency in September, up from 20 per cent in 2021.
At the central financial work conference in 2023, a high-profile policy meeting held twice a decade, President Xi Jinping set out the goal of forging China into a “financial superpower”, later highlighting in a seminar that a strong yuan was the first of six core elements of this vision.
That goal was reiterated in a detailed proposal for China’s next five-year plan issued last month, a document that will set the tone for the next half-decade of policymaking.
The proposal called for continued efforts to promote the yuan’s internationalisation, including the building of “a self-reliant and controllable cross-border yuan payment system”, plus more access to foreign funding in domestic projects.
Meanwhile, in a front-page article on Tuesday, the People’s Daily – the official newspaper of the ruling Communist Party – said finance is a “matter of national importance”, with “sustained, long-term effort” required to build the country into a financial powerhouse. It called for accelerating the development of a “modern financial system with Chinese characteristics” to achieve this aim.
“Ranking a strong currency as the first core element of a financially strong nation effectively ushered in an era of strong RMB policy, in our view,” said Ding Shuang, chief economist for Greater China and North Asia at Standard Chartered.
In a recent meeting, China’s central bank adopted a more proactive stance on the matter, pledging to “promote the internationalisation of the yuan” and dropping the qualifiers “prudently and steadily” that had been used for years. Observers said this move could signal stronger efforts to globalise the currency.
Lu Lei, deputy governor of the People’s Bank of China, said in Hong Kong on Monday that the PBOC has been steadily expanding the operations of its cross-border interbank payment system in the city, and vowed to explore new payment solutions using the central bank’s digital currency, the e-CNY.
“We expect policies to be actively aligned to promote the yuan’s global status, aiming to offer a viable backup rather than challenge US dollar dominance in the international monetary system,” analysts from Standard Chartered, led by Ding, said in a report on Friday.
While policies supporting the yuan did not mean Beijing intended to engineer appreciation for its currency, the analysts said these measures could generally “help keep its value buoyant”.
Meanwhile, experts also noted that while stronger usage of the yuan in global trade settlement was “encouraging”, the currency still had many miles to cover before becoming truly global, especially when compared to the dominance of the US dollar.
“Of course, we have to keep in mind that [the share of global trade settlement] is just one aspect of what makes a global currency, and all taken together, the yuan’s global status is still a very long way from the US dollar or even the euro,” Huang from Allianz Trade added.
She said the yuan still remained far behind the US dollar in terms of presence in global reserves, internationalisation and convertibility.
The yuan accounted for only 2.12 per cent of global foreign exchange reserves as of the second quarter of 2025, data from the International Monetary Fund showed.
While that marked progress from the 1.08 per cent observed in 2016 and 1.89 per cent recorded at the end of 2018, it still paled in comparison with the US dollar’s dominant 56.32 per cent share.
“But you have to start somewhere,” Huang said, noting Chinese policymakers seemed to be leveraging the country’s strengths to promote the yuan in trade, green finance, commodities and technology.
“China seems to be pursuing the unorthodox approach of wanting to become a reserve currency provider without full capital account convertibility.” -- SOUTH CHINA MORNING POST
