(Caixin Global)
In the first half of 2025, the U.S. dollar tumbled across the board, sliding against the euro, pound and renminbi (RMB) in what many global investors are calling its “worst six months in modern history.”
Behind the plunge is the fallout from U.S. President Donald Trump’s second-term trade policies — particularly a renewed obsession with “reciprocal tariffs” — and a growing crisis of confidence in America’s fiscal discipline and central bank independence. The dollar, once untouchable, is suddenly looking vulnerable.
The ripples are global, but for Beijing, the timing is exquisite. As skepticism toward the dollar grows, Chinese financial institutions are intensifying efforts to internationalize the RMB — a campaign more than a decade in the making but now fueled by urgency and opportunity.
“Institutions that previously wouldn’t even consider the RMB are now approaching us,” said an executive familiar with Bank of China’s Hong Kong subsidiary. “There’s real appetite for diversification away from the dollar.”
Chinese regulators are seizing the moment. From Beijing to Bangkok, state-owned giants like the Bank of China and China Construction Bank are promoting RMB-denominated services, launching roadshows in Southeast Asia and tightening integration across the region.
Even the European Central Bank has taken notice. In its June 2025 report on the euro’s global role, ECB President Christine Lagarde flagged a rare cross-asset correlation caused by U.S. tariff hikes and called for steps to strengthen the euro’s international position.
But the real momentum may belong to China. Despite years of slow progress, the RMB is now the world’s second-largest trade finance currency and third-largest payment currency, according to the People’s Bank of China (PBOC). Officials say the current climate offers a rare opening to accelerate its rise — especially as countries and corporates seek alternatives to the “weaponized” dollar.
There’s also a new player in the currency game: the stablecoin. These crypto-linked instruments have quietly surged in 2025, acting as a digital bridge between blockchain and the real world. Some economists believe an offshore RMB stablecoin could bypass legacy banking systems, fast-tracking internationalization and offering a viable, tech-driven alternative to the dollar.
Still, renminbi internationalization remains an uphill climb. Yu Yongding, a senior fellow at the Chinese Academy of Social Sciences, warns that this is a “long-term, complex process.” In his view, incremental progress is the right approach. “At this stage, we should do what we can, step by step,” he told Caixin. Crucially, he emphasizes the need for rigorous, data-driven analysis when weighing the trade-offs between capital account management and currency openness.
Indeed, progress is uneven. Central bank data from both China and the U.S. show that while the RMB’s internationalization index has broadly risen over the past decade, it still lags behind the dollar and euro. China has the world’s second-largest economy and a commanding trade position, but its capital controls, limited legal predictability and underdeveloped financial markets continue to limit the RMB’s global reach.
Still, reform pressure is building. The last major overhaul of China’s exchange rate regime came in 2015. Now, with the dollar weakening and China’s asset bubbles significantly deflated, many economists argue conditions are ripe for a new phase of reform — combining greater exchange rate flexibility with cautious capital account liberalization. “We’re looking at a very rare alignment,” said one senior Chinese economist. “It may not come again for years.”
Strategically, experts are already contemplating a future in which the global monetary order looks very different. Yuan, euro and dollar — a tripolar world. “The long-term dominance of the U.S. dollar will likely be eroded,” said Li Wei, an economics professor at Cheung Kong Graduate School of Business. “The renminbi has the potential to rise to center stage — but only if China sustains growth, maintains stability and pushes through deep financial reforms.”
At a time of rising economic nationalism and changing global alliances, currencies are no longer just tools of trade — they are instruments of strategy. China is not just building a currency; it’s building an alternative. And the rest of the world is watching.
The People’s Bank of China
Expanding the renminbi’s circle
In the race to reshape the international monetary order, China isn’t relying on grand declarations — it is building bridges, pipelines and a growing circle of trusted friends. From payment infrastructure to swap lines and clearing banks, the RMB’s global footprint is expanding steadily, piece by piece.
Network effects are everything in the currency game. The more a currency is used globally, the cheaper and more efficient it becomes to trade and settle in. That logic explains the U.S. dollar’s dominance — and now guides China’s renminbi strategy. “Every new use case reinforces the next,” explained one cross-border finance expert. “The RMB’s internationalization relies on building scale, relevance and trust.”
At the center of this infrastructure push is CIPS, or the Cross-border Interbank Payment System. Unlike SWIFT, which only transmits payment instructions, CIPS handles both messaging and settlement. Since its 2015 launch, CIPS has quietly become the “highway” for cross-border RMB payments — fast, efficient and expanding. By August 2025, it connected more than 1,700 direct and indirect participants across 180 countries, including major institutions from Africa, the Middle East, Central Asia and Southeast Asia.
The CIPS Cross-Border Bank-Enterprise Cooperation special event at the 2025 China International Finance Expo in Shanghai on June 18, 2025.
The numbers tell the story: CIPS processed 175 trillion yuan ($24.5 trillion) in 2024 alone, up 43% year-on-year. Over the past three years, the volume of transactions and payment value have grown at compound annual rates of 35% and 30%, respectively. “The bigger the network gets, the more transactions default to it,” said one insider. “It’s faster and cheaper — especially as more institutions join directly.”
In July, China’s central bank proposed new rules to expand participation in CIPS, aiming to attract more overseas players and optimize processes. Simultaneously, Beijing has intensified its currency swap diplomacy. Since the 2008 global financial crisis, the People’s Bank of China (PBOC) has signed bilateral swap agreements with 32 countries totaling roughly 4.5 trillion yuan. The most recent, signed with New Zealand in August, allows a 25-billion-yuan exchange line for five years.
Just as vital to this ecosystem are renminbi clearing banks — offshore institutions authorized to settle RMB transactions locally. These banks anchor liquidity, provide direct access to China’s financial system and often act as Beijing’s unofficial ambassadors in offshore markets. Today, 35 RMB clearing banks operate in 33 jurisdictions, covering most of China’s key trading partners.
The biggest of them all is Bank of China (Hong Kong) Ltd. which handled more than 326.6 trillion yuan in settlements through Hong Kong’s Real-Time Gross Settlement system. Two foreign banks — JPMorgan Chase in the U.S. and Mitsubishi UFJ in Japan — have also been authorized as RMB clearing banks, reflecting Beijing’s growing confidence in strategic delegation.
To support the next phase, the PBOC is expected to expand policy support. Future initiatives may include broader interbank lending channels and the designation of secondary clearing banks in key regions to handle growing demand. Already, over 1,000 overseas financial institutions have opened RMB clearing accounts as of late 2024.
This ecosystem — spanning CIPS, clearing banks and swap lines — is the architecture behind China’s slow but steady currency rise. As one CIPS official put it: “We build bridges where the renminbi is used. That’s how you expand the circle.”
Unblocking the RMB loop
The RMB internationalization isn’t just about symbolism or headlines — it’s about flow. For China’s currency to truly go global, it must move fluidly between borders, trade corridors and financial systems. That means building more than infrastructure — it means building circulation.
Today, when a foreign company receives a payment in RMB or secures a loan in the currency, those funds leave China’s onshore “pool” and becomes part of the offshore RMB market — now totaling just under 2 trillion yuan. Whether used for local operations, parked in offshore deposits or reinvested back into China’s markets, each link in the loop must work seamlessly. The trouble is it doesn’t — at least not yet.
While usage has broadened, friction remains. According to China’s State Administration of Foreign Exchange, RMB accounted for nearly 54% of all outbound payments by Chinese entities that as of July 2025 — double its share a decade earlier. Still, offshore users often find few practical ways to spend, invest or reinvest the renminbi. Without demand, flow becomes a one-way trip.
Signs of progress are emerging. In 2023, the renminbi surpassed the euro to become the world’s second-largest trade finance currency. A 2025 Bank of China white paper found that 77% of surveyed ASEAN businesses now prefer RMB financing in trade with China. And when dollar and euro liquidity tightens, nearly 80% of international companies said they turn to RMB as an alternative.
One popular tool is the “Panda bond” — onshore debt issued by foreign entities in RMB. Regulatory reforms in 2022 allowed broader cross-border use of funds, and by July 2025, issuance had surged nearly 140% year-on-year to 100.8 billion yuan. The New Development Bank, a multilateral development bank established by the BRICS nations, alone issued 7 billion yuan in Panda bonds in 2025, now accounting for more than 70% of all international institution issuance in the market.
Chinese banks are also quietly scaling up offshore RMB lending. As of June 2025, foreign institutions held 1.15 trillion yuan in domestic RMB loans — the highest in a year.
But international currencies are sticky. The dollar still dominates in sectors with deep global supply chains such as manufacturing, shipping and engineering. Central state-owned enterprises (SOEs) prefer a single currency to avoid foreign exchange (FX) risks — usually the dollar or euro. And in smaller countries with FX restrictions or underdeveloped banking sectors, such as Cambodia or Laos, demand for RMB remains limited.
Experts argue Beijing can and should “ask more” from its trade partners. Yu from the Chinese Academy of Social Sciences argues that outbound investments tied to the Belt and Road initiative could require RMB-denominated settlement. Recipient nations could be encouraged to hold short-term RMB assets, or issue Panda bonds for Chinese lending. “China has the leverage to guide its counterparties,” he wrote.
Ultimately, the goal is not just to make others accept the RMB — but to make them to want to hold it. This requires offshore investment products, safe-yielding RMB assets and channels to reinvest the renminbi onshore. In one case, the Bank of China helped a commodity giant restructure its full trade-finance cycle — raising the share of RMB in cross-border flows from under 30% to nearly 70%.
Hong Kong, as always, plays a pivotal role. In February 2025, its monetary authority launched a 100-billion-yuan RMB trade finance facility, with maturities of up to six months. Previous liquidity tools capped at seven days; the shift was a game-changer. Banks could now access cheaper, more predictable funding linked to onshore rates, enhancing cost efficiency and predictability for borrowers.
As one Industrial and Commercial Bank of China (Asia) executive put it: “Chinese exporters increasingly choose RMB settlement — not just for patriotism, but because it’s cheaper, more stable and simpler.” Yet, as Li of Cheung Kong Graduate School of Business noted, global dominance requires more than favorable policy. “If we want the RMB to rise, we need to offer the world more ways to put it to work.”
Broadening the offshore base
For the renminbi to become a true global currency, it needs more than just policy support — it needs a robust offshore market that rivals those of the dollar, euro and yen. In its latest mid-year work meeting, China’s central bank made this clear: the next stage of renminbi internationalization must focus on building “a stable, full-spectrum offshore liquidity supply system.”
Staff at the Yiwu China-Africa Cross-Border RMB Settlement Center in Jinhua, Zhejiang province, is handling cross-border RMB settlement business for a foreign trader on Aug. 30, 2024.
Hong Kong remains the crown jewel of the offshore renminbi network, a role it has held since 2003. Yet its deposit base has plateaued. In fact, after peaking at over 1 trillion in 2014, Hong Kong’s RMB deposits have struggled to grow. By June 2025, they had dropped to 882 billion yuan before modestly rebounding to 938 billion yuan in July. Low deposit rates — around 1% for six-month terms — have made RMB less attractive than high-yielding HKD and USD alternatives.
Still Hong Kong’s strategic role is central. Its liquidity and financial connectivity have allowed it to serve as a bridge to ASEAN countries, Central Asia and beyond. In August, for example, Kazakhstan’s tungsten producer Jiaxin International Resources Investment Ltd. dual-listed in Hong Kong and Astana — becoming the first Central Asian stock denominated in RMB. Officials called it a milestone in RMB internationalization.
Offshore RMB markets elsewhere are growing but remain far smaller. As of late 2024, RMB deposit totals were 926.6 billion yuan in Hong Kong, 276 billion yuan in Singapore, 156 billion yuan in the UK, and 119 billion yuan in Taiwan. The offshore ecosystem, in other words, is still “one giant hub and a few spokes.”
Yet where deposits stall, borrowing has surged. With RMB interest rates well below USD and HKD, many corporates are converting foreign debt into RMB. By mid-2025, Hong Kong’s RMB loan-to-deposit ratio was nearing 100%. But challenges remain: long-term lending is still difficult due to the lack of a transparent yield curve or pricing benchmarks. Without those tools, RMB remains a second-tier offshore financing currency.
One area of success is the dim sum bond — an offshore RMB bond issued outside Chinese mainland. In 2024, issuance hit 1.07 trillion yuan (including Certificates of Deposit), up 36.7% year-on-year with plain dim sum bond issuance jumping 79%. The first half of 2025 continued the boom, with issuers ranging from Nestlé and Temasek to Chubb and the Development Bank of Kazakhstan. Oversubscription levels underscored strong investor appetite.
Still, the market is shallow compared with offshore USD bonds, with most RMB bonds short-dated, and lacking pricing confidence. As one Bank of China executive said: “We need broader adoption, larger issue sizes and longer maturities, The market is maturing, but it’s not yet mature enough.”
Clearing remains concentrated in Hong Kong, which processed 224.5 trillion yuan in RMB payments in 2024 — up 41.2% from the previous year. The UK and Singapore followed with 16.1 trillion yuan and 9.7 trillion yuan, respectively. Yet London continues to dominate RMB forex trading, clearing over 100 trillion yuan in 2024 — more than Hong Kong’s 68.9 trillion yuan.
To deepen offshore liquidity, authorities are working on multiple fronts. These include an RMB trade finance facility from the Hong Kong Monetary Authority, Chinese mainland interbank access for foreign banks, and expanded clearing bank privileges for offshore institutions. The PBOC is also pushing for more RMB sovereign bond issuance abroad to provide safe RMB assets and anchor offshore yield curves.
This year, Beijing approved 680 billion yuan in offshore RMB bond issuance through Hong Kong, a 20% increase from 2024. It also issued 60 billion yuan of such bonds in Macau. By August 2025, the outstanding balance of offshore RMB sovereign bonds across Hong Kong, Macau and London had reached a record 176 billion yuan.
“The U.S. has deep offshore markets, and many Treasury trades executed in Europe and Asia,” noted Xia Chun, chief economist at ApaH Capital Management Ltd. “If China can build a similar offshore RMB market — with deep liquidity and diverse instruments — foreign investors wouldn’t necessarily need full access to the Chinese mainland financial market.”
Free trade zone dilemma
China’s 22 free trade zones (FTZs) are being positioned as testing grounds for RMB internationalization. While each zone has unique financial reform language, all share common goals: expanding cross-border RMB use, facilitating two-way capital flows and testing capital account convertibility.
Since 2024, the policy direction has grown clearer. Shanghai has emerged as the frontrunner. In March 2025, four major regulators jointly issued a roadmap to expand the city’s Free Trade Account framework. By June, the Central Financial Commission called for Shanghai to become a global RMB asset allocation and risk management hub within 5–10 years.
Launched in 2014, Shanghai’s Free Trade Account offers domestic entities access to offshore-like financial treatment, with funds moving freely across borders under a “first-line open, second-line controlled” model —convertible externally, but supervised internally.
Regulators are now expanding this model to other FTZs, though discrepancies remain. Shanghai’s model emphasizes top-down oversight and statistical tracking — more aligned with China’s compliance-first approach. Guangdong’s more flexible version places greater demand on real-time oversight capacity.
“With the Free Trade Account rollout, Shanghai has effectively replaced older structures like the Offshore Account and the Non-Resident Account” said a major state bank official. “This strengthens centralized control while supporting offshore-style operations.”
In August 2025, the Industrial and Commercial Bank of China became the first bank to offer free trade accounts across all five major FTZs — Shanghai, Guangdong, Shenzhen, Tianjin, and Hainan. Meanwhile, Shanghai is piloting “FT Plus,” a next-generation account system with upgraded transfer and settlement features, aimed at preserving its policy lead over other zones.
A parallel initiative is underway in Shanghai’s Lin-gang special area, where the PBOC is testing offshore trade finance reforms using “offshore subsidiaries” and a whitelist preapproval system. Companies say the model is too rigid for real-world trade, especially in bulk commodities where buyers are market-driven and can’t be pre-assigned.
“Trade finance requires flexibility,” one FTZ banker explained. “Forcing firms to set up special offshore entities might create friction instead of solving it.”
Since its 2013 launch, the Shanghai FTZ has zigzagged — initially geared toward liberalization but later constrained by risk concerns. “Controls keep piling on, making the regulatory framework increasingly complex,” said one policy adviser. “To become a real offshore hub, the zone must find a better balance between openness and control.”
The same dilemma haunts broader capital account liberalization — arguably the most delicate piece of RMB internationalization. With global ambitions rising, the pressure to get that balance right is only intensifying.
Capital account hurdles
“RMB internationalization ultimately hinges on capital account openness,” said Peter Burnett, President of the China-Britain Business Council and former Chair of the British Chamber of Commerce in Hong Kong. Speaking at the Caixin London Atlantic Dialogue in May 2025, he added, “As the world’s second-largest economy, China appears to be moving toward greater capital account flexibility, but current connect schemes remain tightly controlled.”
Since achieving current account convertibility in 1996, China has made incremental moves toward capital account liberalization. But progress has been cautious, especially in portfolio investment and cross-border lending, where fears of volatility and capital flight persist.
Direct investment has been liberalized more quickly. Since 2015, both inbound and outbound direct investments have been registered directly at banks without prior approval. Given its long-term and stable nature, foreign direct investment (FDI) has historically been viewed as less risky and more manageable.
One major initiative in recent years has been the domestic-foreign currency integrated cash pool, which lets multinational firms manage RMB and foreign currency in one account. Piloted in 2021, the scheme has gone through three optimization rounds. In April 2025, the central bank proposed expanding the program nationwide.
“It significantly improves RMB usage efficiency in cross-border settlement and investment,” said Zhang Liang, Chairman of Commerzbank’s China Branch.
On the securities front, the Qualified Foreign Institutional Investor (QFII) and Renminbi QFII (RQFII) programs have paved the way for international investors to enter China’s capital markets. Over time, quotas were removed, application processes simplified and access widened.
In August 2024, QFII was further upgraded to allow RMB-based repatriation and from October 2025, investors will also be able to trade onshore ETF options for hedging purposes.
A signature feature of China’s capital account liberalization is its connect-based approach. Since the 2014 launch of the Shanghai-Hong Kong Stock Connect, programs have expanded to ETFs, bonds, wealth management products and interest rate swaps. Most recently, the scope of Bond Connect Southbound trading was widened to include brokerages, insurers and mutual funds.
Yet many of these schemes remain quota- or whitelist-based. “More pipes don’t mean full convertibility,” said one FX policy expert. “There’s still a ceiling on how far and how fast money can move.”
PBOC adviser Guan Tao argues that capital account liberalization should advance in step with domestic financial reforms. “We need to strengthen market infrastructure — credit ratings, accounting standards, investor protections — to build global trust,” he said. For example, foreign investors still largely avoid China’s corporate bond market, preferring safer government debt.
He also called for outbound capital liberalization. “It’s not just about attracting capital,” he said. “Allowing Chinese funds to seek global returns is equally important — especially in a low-interest, aging economy. Outbound diversification should go hand in hand with reform.”
Dual-track digital path
The rise of stablecoins, boosted by recent U.S. policy shifts such as the Trump administration’s strategic reserves in Bitcoin and push for regulated digital assets, is reshaping the global currency system. Dollar stablecoins are gaining legal recognition, increasingly encroaching on sovereign space.
“This is the black swan of the international monetary system,” warned Yu from the Chinese Academy of Social Sciences.
China, is countering with heavy investment in international digital currency use. The mBridge project, jointly developed by the BIS Innovation Hub Center in Hong Kong, PBOC’s Digital Currency Institute, the central banks of Thailand and the UAE, and the Hong Kong Monetary Authority, aims to provide a scalable, low-cost, regulation-compliant cross-border payment system using central bank digital currencies.
After entering the minimum viable product phase in June 2024, mBridge has been piloted at Chinese state banks in Shenzhen, Xinjiang, Wenzhou and Jinhua. Companies have successfully completed cross-border RMB payments and remittances through the system.
Bank of China (Hong Kong) reports that by July 2025, it had processed nearly 200 transactions via mBridge, totaling more than HK$11 billion ($1.41 billion with 80% in RMB.
In June 2025, the PBOC announced the creation of a digital RMB international operations center in Shanghai, approved in late 2024. It will manage central-bank-level infrastructure leaving wallet providers to focus on retail and commercial use cases.
Meanwhile, Hong Kong passed its Stablecoin Regulation Ordinance on August 1, 2025, fueling renewed interest in RMB-linked stablecoins as a hedge against dollar dominance, particularly for use in Belt and Road markets where local currency volatility is high.
Analysts suggest that combining the e-CNY infrastructure with Hong Kong’s regulatory framework could create space for offshore RMB stablecoins, especially in trade financing. Chinese firms could issue their own stablecoins to settle deals in emerging markets, potentially enhancing RMB’s global reach.
However, legal compliance is critical. Under Hong Kong’s Anti-Money Laundering ordinance, stablecoins used for remittance or value transfer must be licensed as money service operators, with full know-your-customer checks to ensure traceability and prevent illicit finance.
Zhang Yuanjie, chief operating officer of Conflux Network, noted that many overseas buyers — especially in Africa, Latin America, and Southeast Asia — prefer to pay Chinese merchants using dollar-pegged stablecoins such as USDT. The RMB’s strong sovereign credit, he said, gives it a natural foundation to build an offshore RMB stablecoin ecosystem.
“China is the largest buyer of commodities globally,” added crypto investor Zheng Di. “Commodity settlement is a natural fit for offshore RMB stablecoins. But if China doesn’t move fast, that space will be overtaken by USDT.”
Contact reporter Denise Jia ([email protected])
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