Renminbi internationalisation: Towards a multi-currency global system

Contrary to conventional wisdom, Beijing’s currency policy may not be aimed at toppling the dollar. The goal is more likely to ensure that the dollar system cannot be used against it.

The critical question is not whether the renminbi can replace the dollar, but whether the global currency system becomes less concentrated. 

What has happened to spark the debate?

• In late September, China started to increase its imports of soybeans from Argentina sharply after similar moves by Brazil, with the bulk of the trades settled in renminbi
• In October:   
• Australia’s BHP Billiton, one of the world’s largest iron ore miners, agreed with Chinese buyers to settle 30% of its iron ore spot trading (equivalent to 6% of annual global iron ore trading) in renminbi instead of dollars
• Indonesia issued its first offshore (‘dim sum’) bond, amounting to RMB 6 billion (~€851 million). The issue was 3.7 times oversubscribed
• Traders selling Russian oil to India have begun asking Indian state refiners to pay in Chinese yuan
• The People’s Bank of China (PBoC) authorised First Abu Dhabi Bank (FAB) as a renminbi clearing bank in the United Arab Emirates (the first local bank to acquire that function in the region), effectively connecting Emirati banks to the Chinese payments system.   
• In November:   
• China issued a $4 billion sovereign bond in Hong Kong which was 30 times oversubscribed. The issue was priced between zero and three basis points over US Treasuries. That was less than the 1-3 bp spread of China’s dollar-denominated sovereign bond issued in Saudi Arabia in November 2024
• China and South Korea signed a five-year currency swap worth RMB 400 billion ($56.3 billion), the latest in a series of such arrangements after similar deals with Turkey in June, Thailand in August, and the EU, Switzerland and Hungary in September.   
• Other incremental steps include Ethiopia, Sri Lanka and Kenya converting their dollar-denominated debt into renminbi-denominated obligations, and Argentina paying its International Monetary Fund debt in renminbi. 

Salami-slicing tactics

These creeping moves to internationalise the renminbi and erode the dollar’s dominance are not new, and they underscore the progress of Beijing’s ‘salami-slicing’ tactics.

By expanding the usage of renminbi further into the commodities sector, Beijing is shaking up a linchpin of the dollar’s supremacy.

China’s success in issuing dollar sovereign bonds at razor-thin spreads over US Treasuries underscores the progress of its ‘a dollar for a dollar’ strategy to become a dollar liquidity manager. The approach redirects liquidity away from the US, which needs large, persistent funding given its current account and fiscal deficits.

The moves also deepen renminbi internationalisation by encouraging emerging market countries to convert dollar-denominated debt into renminbi-denominated debt.

Granted, each salami-slice is small on its own. Taken together, however, they send the signal that the renminbi is becoming more internationalised and they chip away at the dollar’s supremacy by building a renminbi-dominated system in parallel to the dollar one.

If more countries join these initiatives, China could build a large, liquid offshore renminbi market, prompting a gradual migration of working capital and trade finance towards a multi-currency setup. 

Beijing is engineering a process to change the world’s currency systems, not through grand pronouncements or by clashing with the dollar, but through thousands of individual procurement and payment decisions. 

TINA protects the dollar

Despite all the ‘de-dollarisation’ talk, any seismic currency shift is unlikely to happen soon simply because today there is no alternative to the dollar (a phenomenon referred to as ‘TINA’).

The BIS 2025 Triennial Central Bank Survey shows the dollar still dominates global foreign exchange markets, accounting for 89.2% of all trades, up from 88.4% in 2022. By contrast, although the renminbi has risen to become the world’s fifth-most-traded currency, its share is small at 8.5% (see Exhibit 1). 

Data from the international SWIFT payment system shows a similar picture. The renminbi accounted for just 3.2% of global payment values in September, compared to the dollar’s 47.8%. This suggests that despite increased momentum, renminbi internationalisation in recent years has been incremental, not revolutionary.

Economic fundamentals argue there is no alternative to replace the dollar in the medium term. The US’s current account deficit (mirroring its savings deficit) must be offset by a capital account surplus, with funds coming from countries that run current account surpluses. As a result, the bulk of the world’s savings surplus has been invested in US Treasuries – a deep, liquid market that can absorb this glut.

If foreign countries (and investors) want to stop funding the US deficit (or buying US assets), they must stop running current account surpluses by boosting domestic spending and investment. This is unlikely to happen soon, so US dollar assets will continue to be in demand.

Indeed, apart from a few months in early 2025, foreign investors have been net buyers of US assets (see Exhibit 2). Reinforcing the ‘TINA’ phenomenon is China’s inconvertible capital account and incomplete financial liberalisation. These features keep the renminbi market small and illiquid, as well as depriving it of any risk-hedging ability. 

Not toppling the dollar

Beijing has prioritised policy control — notably monetary sovereignty (i.e., controlling the interest rate) — over open markets. Its currency policy has thus focused on the renminbi’s functional roles (medium of exchange, invoicing and financing) instead of foundational roles such as store of value and reserve asset.

China does not, however, want to entirely give up control of the exchange rate. It has opted for limited capital account convertibility at the expense of capping the renminbi’s scope to challenge the dollar’s supremacy.¹

The policy goal is not to topple the dollar, but simply to ensure that the dollar-dominated system cannot be used against China; it is a defensive move. After Russia’s reserves were frozen in 2022 following the start of the Ukraine conflict, this is no longer a theoretical risk. Gold in the vault and a broader mix of dollar and non-dollar currencies are sensible countermeasures.

The renminbi’s creeping internationalisation has reconfigured the system’s ‘plumbing’, with a potentially significant impact on the global monetary order in the longer term.

The Chinese ‘plumbing’ — the renminbi-dominated Cross-border Interbank Payment System (CIPS), cross-border swap lines, offshore renminbi clearing banks and offshore renminbi bond markets — is small for now. But it is growing and offers the world an option of non-dollar financial infrastructure.

While global markets may still price cargo and commodities in dollars, and countries may keep most of their reserves in dollars, they may also increasingly settle some flows in renminbi, fund projects with dim sum bonds, and add more renminbi to savings and reserves. 

Where does this leave the dollar?

The dollar is still on top in payments, savings, financing, and swap-line backstops. The SWIFT and BIS currency trading league tables show how entrenched its position is.

Much of the de-dollarisation talk confuses the ‘use’ (or functional role) of money with its ‘centrality’ (or foundational role). A rise in non-dollar use — for, say, renminbi trades or financing deals — does not in itself threaten the dollar’s centrality, which is anchored in US capital markets, the rule of law, deep collateral chains and the US Federal Reserve’s credibility. The renminbi is currently unable to challenge it.

To ask whether or when the renminbi can replace the dollar, however, misses the point.

A better question is whether the global system is becoming more stable via a multi-currency framework that can provide an alternative financial infrastructure.

Investors’ strategic currency positioning should consider the relative weighting of the dollar and the renminbi, not choosing between one or the other.