In early April, hours after US President Donald Trump threatened to bomb Iran “back to the Stone Ages” in a prime-time address, China’s yuan-denominated cross-border payment system set a record for transaction volume in a single day.
The Cross-Border Interbank Payment System (CIPS) skyrocketed to 1.22 trillion yuan (US$180.3 billion) on April 2, almost doubling the daily average volume in February.
The spike occurred as more oil-producing nations rapidly scaled up their share of yuan settlements – the so-called petroyuan – amid a global trend towards de-dollarisation that the Iran war has further accelerated.
But even with these changes, the US dollar continues to maintain a sizeable majority in international settlements. However, one milestone appears more attainable in the short term: increasing the yuan’s cross-border usage to a large enough degree for the currency to surpass the euro and take the second-place spot in global exchanges.
Analysts and industry insiders in China said the moment was fast approaching, if it had not already arrived. Central bank governor Pan Gongsheng said in June 2025 the yuan was the third-largest payment currency globally on a comprehensive basis, and had already become the world’s second-largest trade finance currency.
“The signs are definitely there,” said Liu Xiaochun, vice-president of the China Academy of Financial Research at Shanghai Jiao Tong University. “Honestly, if Europe keeps stagnating the way it is now, [the euro] is going to be overtaken pretty quickly.”
Others said the essence of the yuan’s rise is not necessarily about taking over the euro, but the evolution of global trade into a system where multiple currencies coexist for settlement depending on region, political alignment and sector.
“It’s a story of gradual, targeted de-dollarisation in China’s sphere rather than a broad takeover of the No 2 spot globally,” said Alicia Garcia Herrero, chief economist for Asia-Pacific at Natixis.
However, traditional benchmarks seem to tell a different story. According to data from the Society for Worldwide Interbank Financial Telecommunication (Swift) – the primary messaging network for international payments – the yuan’s share of global payments dropped to sixth place in April, accounting for 2.85 per cent and trailing behind the US dollar, euro, British pound, Japanese yen and Canadian dollar. The currency spent much of 2024 ranked fourth, with over 4 per cent of transactions.
But despite the yuan’s drop in the Swift rankings, analysts said the currency is gaining standing outside the dollar-centric payment mechanism, with the platform’s data missing the rising volume of yuan settlement handled outside the network – including via CIPS, bilateral currency swaps and direct settlements between China and countries like Russia and Iran.
Almost all bilateral trade between Russia and China is now settled in local currencies, Russian officials have acknowledged, with the yuan making up the vast majority. A significant portion of transactions flow through small, regional Chinese banks often located along the Russian border, using direct settlement and local messaging, Liu said.
“Basically, many countries are seeking to avoid US or Western sanctions – or stopping the US from tracking their every move, so they’re avoiding Swift completely,” Liu said.
“And it’s not just about the yuan. In fact, if any other currency can bypass the Swift network, they are going to do it.”
In a question and answer session at the Economic Club of New York on May 28, Canadian Prime Minister Mark Carney said that part of the solution to global imbalances was the rising role of China’s currency and the opening up of the country’s capital account.
“If you are ... a rising economic power ... you have to assume more responsibility for the global international monetary and financial system,” the former investment banker and central bank governor said.
Carney added that China should move faster and more decisively in that process, and that Canada was willing to help “around the margin”.
“Countries facing sanctions pressure, or simply seeking greater strategic autonomy, increasingly see settlement in yuan as a practical hedge against financial vulnerability,” said Matteo Giovannini, a senior finance manager at the Industrial and Commercial Bank of China.
“Russia is the clearest example, but the trend is broader and includes parts of the Middle East, Central Asia, Southeast Asia and even some Global South economies seeking diversification,” said Giovannini, who is also a non-resident associate fellow at the Centre for China and Globalisation think tank.
An executive at a European branch of a Chinese bank said Southeast Asia and Latin America have been the major growth drivers for the yuan’s international usage since the second half of last year.
The currency’s fast adoption in Southeast Asia was primarily trade-driven, analysts said, owing to their tight integration with China’s industrial chains. In Latin America, meanwhile, financing factors are more prominent, with the yuan frequently tied to infrastructure projects and trade finance through central bank swap lines.
China’s role as the world’s largest trading nation naturally created demand for yuan settlement, Giovannini said.
“As China becomes the primary trade partner for more countries, it is increasingly rational for exporters and importers to invoice directly in yuan to reduce exchange costs and currency volatility,” he said.
“The expansion of CIPS, bilateral currency swap agreements and offshore yuan liquidity pools has made this process much easier than a decade ago.”
By the end of March, the CIPS network hosted 194 direct and 1,597 indirect participants, with businesses covering 191 countries and regions. Direct participants can conduct CIPS payments on their own while indirect participants must rely on a direct participant to conduct payments within CIPS.
“In other words, the number of direct participants is the real determinant of the CIPS’s capacity,” according to a report by Natixis last month. The investment bank said the current number of direct participants more than tripled compared with 2020.
“The momentum is expected to continue, especially as the updated CIPS rule now allows overseas institutions to rely on offshore fund custodians to clear payments, which largely reduces the entry barrier of being a direct participant now that they don’t need to route their funds to onshore banks for clearing,” the report’s authors said.
Meanwhile, the growth of yuan-denominated energy trade is especially significant, as oil trade has historically been one of the pillars supporting dollar dominance, Giovannini added.
A recent and widely cited figure in mainland Chinese media and research institutes is that yuan-denominated settlements accounted for a historic 41 per cent of the Middle East’s crude oil trade with China in March, placing the yuan second among settlement currencies in that trade for the first time.
“Even gradual increases in yuan settlement for energy transactions with Middle Eastern producers represent an important symbolic and structural development,” Giovannini said. “It does not mean the ‘petrodollar’ disappears, but it does suggest the emergence of parallel settlement ecosystems.”
While the push for the internationalisation of yuan was traditionally centred on trade settlements, with investment and financing functions being a weak link, analysts said that has changed over the past year, with yuan-denominated financing seeing robust growth due to lower funding costs.
Currently, yuan financing rates remain at a historic low, with borrowing costs for maturities under three years sitting below the 2 per cent threshold for top-tier companies, according to the Chinese bank executive, who spoke on condition of anonymity. In comparison, similar corporate coupon rates for US dollar bonds are generally above 4.5 per cent.
Meanwhile, the People’s Bank of China’s slower pace of rate cuts since the latter half of last year has boosted the yuan’s exchange rate, which has moved in tandem with the US dollar in the first half of the year and rallied against the euro and yen.
“As a result, global investors are showing a renewed appetite for [yuan-dominated] assets,” the executive said.
In the first five months of the year, the issuance volume of panda bonds – yuan-denominated bonds issued in mainland China by a foreign entity – reached a record 136.5 billion yuan, up 90.3 per cent from the same period last year. Pakistan and Kazakhstan were among the most recent issuers.
The issuance of dim sum bonds – yuan-denominated bonds issued outside mainland China – has also rallied this year, with Chinese tech giants the major issuers.
Liu added the rising trend of Chinese firms making outbound investments was also facilitating the internationalisation of the yuan. When a factory was built overseas, he said, equipment and raw materials would need to be shipped from China, and transactions could be settled directly with yuan to avoid exchange rate risks.
“This differs significantly from the early days of Chinese companies ‘going global’, which were largely driven by a search for new export markets or foreign technology,” Liu said.
“Back then, firms needed to spend US dollars to acquire foreign assets and tech.”
Still, analysts cautioned that it was important not to overstate the pace of yuan internationalisation, as it faced major structural limitations before it could fully challenge the dollar’s global dominance.
“China maintains capital controls, its financial markets are not yet as open or liquid as US markets, and global investors still view US Treasury markets as the ultimate safe-haven asset,” Giovannini said. “In times of crisis, capital still overwhelmingly flows into dollars rather than yuan.”
Regarding the euro specifically, Europe’s relative economic stagnation, energy shocks after the Ukraine war and fragmented capital markets have weakened the euro’s momentum in global finance, he said.
“Meanwhile, China has been actively building institutions and payment infrastructures that promote yuan internationalisation. So the comparison partly reflects Europe’s slower strategic adaptation as much as China’s rise.”
Nevertheless, the euro still maintained advantages over the yuan in areas such as financial market depth and openness, international pricing capabilities, policy framework transparency and predictability, as well as the legal and regulatory landscape, according to a 2025 report from the China Finance 40 Forum think tank.
But as China speeds up the development of the digital yuan, it could lock in a distinct first-mover advantage, as the euro zone has not yet rolled out a digital currency at scale, the think tank said.
“We may be entering an era where the dollar remains dominant globally, while the yuan becomes increasingly influential across Eurasia, energy markets and ‘south-south’ trade,” Giovannini said.
-- SOUTH CHINA MORNING POST
