Yuan poised for stronger global role

The Chinese yuan is approaching a strategic window to accelerate its ascent as an international reserve currency, as the US dollar's role is increasingly questioned, and support for domestic companies in going global is set to become a higher priority for China, economists and policy advisers said.

To translate this opportunity into tangible progress, it is seen as integral to broaden global investors' access to China's capital markets through a more integrated framework, and to significantly raise the capital account liberalization level in a gradual manner to ensure openness as well as stability.

"Rising geopolitical uncertainties and growing doubts over the United States' fiscal and trade policies create a rare window of opportunity for the renminbi and other currencies like the euro and the yen to gain greater favor among global investors," said Betty Wang, head of Northeast Asia research at Oxford Economics.

Markets have priced in a stronger yuan as investors adjust their allocations amid weakening confidence in the dollar and US interest rate cuts. The onshore renminbi rose to 7.0644 per dollar on Monday, its strongest level since October 2024. Goldman Sachs forecasts that the currency could appreciate to around 6.6 per dollar by 2027.

Also accelerating the renminbi's international rise would be the global expansion of Chinese manufacturers, which increases the demand for cross-border renminbi financing and settlement, analysts said.

Guo Kai, executive president of the CF40 Institute, said that supporting Chinese companies' overseas expansion has taken on growing strategic importance, as it offers a sustainable and mutually beneficial way for China to manage its trade surplus with the rest of the world.

The country's leadership has signaled a more assertive, proactive stance toward renminbi internationalization.

Adopted at the fourth plenary session of the 20th Central Committee of the Communist Party of China, the recommendations for formulating the 15th Five-Year Plan (2026-30) called for advancing the internationalization — a fine-tuning from "steadily and prudently" advancing its internationalization set at last year's third plenary session.

Pan Gongsheng, governor of the People's Bank of China, the country's central bank, said in October that China will comprehensively enhance the international currency functions of the renminbi, including pricing, payment, investment, financing and reserve.

Guan Tao, global chief economist at BOCI China, said that China's pursuit of a currency whose international standing matches its economic influence is "a natural choice", serving the real economy by supporting Belt and Road cooperation and the global expansion of Chinese enterprises.

"The renminbi also offers other economies and investors an alternative when the dollar-dominated system is showing rising fragility, helping reduce overreliance on one single currency and bolstering global financial resilience," said Guan.

The renminbi is now China's largest cross-border settlement currency and the world's second-most used in trade finance, ranking third in the International Monetary Fund's Special Drawing Rights basket.

Despite the progress, overseas investors currently hold only around 3 to 4 percent of onshore stocks and bonds by market value, official data showed. As of the second quarter, the renminbi accounted for 2.12 percent of allocated foreign exchange reserves, far below China's economic weight, according to the IMF.

Noting that the acceptance of the currency remains constrained as it is not yet fully convertible under the capital account, which tracks cross-border capital flows, Guan suggested lifting the combined share of items classified as "basically convertible" and "convertible" to more than 80 percent of all capital account transactions by 2030, up from about 60 percent at present.

Guan, who served at the State Administration of Foreign Exchange, said that future opening-up steps are likely to maintain a prudent and gradual approach, as capital account liberalization could amplify asset price swings and market distortions if domestic reforms fail to keep pace.

Howard Davies, chair of the International Advisory Council of the China Securities Regulatory Commission, said that some degree of risk-taking and letting the renminbi be more convertible would be inevitable if China aims to build a truly international currency.

Thomas Helbling, deputy director of the IMF's Asia and Pacific Department, said, "For the greater internationalization of the renminbi, China would need to further open its financial markets and allow easier access for foreign participants to invest in liquid renminbi assets that could serve as reserves for central banks."