China’s Yuan Is Quietly Gaining Ground


The Chinese currency’s use abroad has risen sharply. That could complicate the impact of any future Western sanctions.

Chinese assets have had a terrible year—but China’s currency is gaining ground as an international payments option.

The yuan’s status as a global currency still faces a huge obstacle in the form of China’s own capital controls. Even so, rising willingness to conduct trade in yuan could help insulate China’s economy, at least to an extent, in the event sanctions were imposed in a hypothetical future conflict with the West. It also could become a source of structural support for the yuan itself, even assuming weaker-than-expected Chinese growth in the years to come.


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The headline numbers are eye-opening. China’s cross-border yuan settlement for merchandise trade has more than doubled, on a monthly basis, since mid-2020—and is now equal in value to over a quarter of China’s top-line goods trade, official figures from the central bank and Commerce Ministry show. That is up from roughly 13% in 2019, and takes the ratio back to where it sat in late 2015—before China’s surprise yuan devaluation and tighter capital controls knocked back the previous big push for yuan internationalization.

In October, 3.6% of international payments globally were made in yuan, according to data from Swift, the international financial-messaging service. That was up from less than 2% in January, and marginally below September’s 3.7%, which was a record high. And the real number may be higher, since some yuan transactions—particularly any involving U.S. sanctioned entities—wouldn’t be conducted using Swift.

Much of this is the Russia effect. Following the outbreak of the Ukraine war and Western sanctions, Russia has replaced Saudi Arabia as China’s top oil supplier and become a key market for Chinese autos. And China and Russia now conduct the lion’s share of their bilateral trade in yuan: Close to two thirds of Russia’s imports from China were already invoiced in yuan by the end of 2022, according to the European Bank for Reconstruction and Development. Many of China’s other international trade partners—particularly those in the developing world less likely to take the West’s side in any hypothetical conflict—will have taken note.


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There are important caveats. Sanctions would still be hugely disruptive to financial flows outside of trade, and could hit China’s ability to deploy its dollar reserves. At 3.6% of global payments, the yuan remains a minnow compared with the dollar, at 47%, and the euro, at 23%. Capital controls limit the attractiveness of the yuan as an investment tool, which will continue to impede its role as a reserve asset—particularly in the developed world. And developed democracies remain critical markets for China: presumably in a crisis, many of them would sign on to U.S. sanctions and refuse to accept yuan.

That doesn’t mean the yuan’s rising profile is unimportant though—particularly given the ways global trade is rerouting amid Western efforts to “derisk" China ties. Places such as Southeast Asia are becoming increasingly important hubs where Chinese goods are assembled into final products, which are then sent on to the U.S. In the future, it isn’t difficult to imagine a rising percentage of exports of Chinese components headed to such places priced in yuan—and some such intermediary countries electing to hold higher yuan reserves as a result.

China’s economy is struggling but it remains an export powerhouse. And the political fragmentation of global trade is starting to migrate into payments systems as well. That could have far-reaching consequences, both in Asia and farther afield, in the years to come.

Write to Nathaniel Taplin at

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