How China is Quietly _Internationalising_ the Yuan

Since Trump returned to office, there's been constant speculation that the US dollar's status as the world's so-called reserve currency might finally be coming to an end. One of the obvious potential replacements is the Chinese Yuan. After all, as evidenced by its status as the world's biggest exporter, the world clearly wants to buy Chinese stuff. And considering you buy Chinese stuff with Yuan, why wouldn't the rest of the world be happy to use it? However, despite their what the CCP calls the Yuan's internationalisation hasn't really happened, and the dollar very much remains the world's reserve currency. However, in the past years or so, the Yuan has suddenly become markedly more popular, and more and more countries have started using China's financial infrastructure. So in this video, we're going to take a look at the CCP's multi-decade project of internationalising the Yuan, why it didn't really happen before, and whether the Let's start by explaining what exactly we mean when we talk about internationalising the Yuan. In short, there has long been a mismatch between the massive role that China plays in the global trading order, and the minimal role that its currency plays in the global financial order. China has been the world's biggest exporter since 2009, and the world's biggest overall goods trader since 2013. Given that the rest of the world clearly buys lots of Chinese stuff, you might expect China's currency, the Yuan, to be pretty popular, given that, well, you can use the Yuan to buy Chinese stuff. But this didn't used to be the case. Until quite recently, the Yuan wasn't used outside of China, and even inside China, lots of companies used foreign currencies, especially US dollars, to issue debts and conduct at least some transactions. The main reason the Yuan wasn't popular was that China has what are known as capital controls. In other words, restrictions and conditions on money being brought in or out of China. This made the Yuan less popular because investors didn't know if they'd be able to actually use their money inside China, or get it out of the country when they wanted to. Anyway, for most of the 90s and 2000s, the CCP didn't really mind that the Yuan wasn't too popular. Sure, this meant that they ended up buying lots of dollars, but they just recycled these into US treasuries, and the fact that the Yuan wasn't popular made it easier for the CCP to control its exchange rate, and devalue the Yuan to make China's exports more competitive. However, in the 2010s, the CCP decided that they needed to, quote-unquote, internationalise the Yuan. This was for essentially two reasons. First, the 2008 financial crisis made the CCP anxious about relying too heavily on dollars, and the US financial system more generally. And second, the West's increasing willingness to essentially weaponise other countries' dependence on the US financial system via sanctions pushed the CCP to lessen its own dependence by creating an alternative system. For context, the US started really using financial sanctions after 9-11, when legislation like Section 311 of the Patriot Act and Executive Order 13224 created sweeping powers to essentially weaponise the financial system. The CCP worried that these sanctions might eventually be directed at China, so set creating an alternative system. Broadly speaking, the CCP did three things during the 2000s to encourage the Yuan's internationalisation. First, they offered a lot of Yuan-denominated loans to foreign countries, often as part of the so-called Belt and Road Initiative, to encourage these countries to use the Yuan. At the same time, the CCP also helped foreign companies issue Yuan-denominated debt inside China, known as dim sum bonds, and later helped foreign and Chinese companies issue Yuan-denominated debt outside of China, known as panda bonds. Second, the CCP created a series of swap lines, which allowed other central banks to essentially exchange their domestic currencies for Yuan at a constant exchange rate, which was supposed to encourage other countries to use the Yuan, safe in the knowledge that they could exchange it back for their own currency at the same exchange rate later. Today, China has over 30 swap lines with a whole load of countries, including the EU and the UK. And thirdly, the CCP took steps to create what's sometimes euphemistically known as financial plumbing. In other words, systems and technologies that make it easier for third countries to use the Yuan. This included a network of banks for Yuan-denominated transactions, a cross-border international payment system, which is essentially a Chinese alternative to SWIFT, and another project called Enbridge, which is trying to use digital currencies to facilitate cross-border payments. Unfortunately for the CCP, the original effort was relatively unsuccessful. The swap lines were never really used, the Yuan wasn't popular outside of China, and its share of global reserves remained below 3%. This was in part because of familiar obstacles like capital controls, but also because the Euro emerged as another alternative to the dollar in the 2000s, and because the 2008 crisis actually strengthened the dollar's role in the world's financial system, both because the US economy recovered quicker than most other economies, and because the Federal Reserve showed that it was willing to backstop other countries' banking systems, which encouraged everyone to keep using dollars. However, in the past couple of years or so, the Yuan's internationalisation has suddenly accelerated. This becomes apparent in lots of metrics. For instance, the volume of Yuan-denominated overseas loans has more than tripled since 2022, and now accounts for nearly half of all Chinese overseas lending. Roughly 7% of all global trade is done in Yuan, up from 2% in 2022, and it's used over 50% of the time in all of China's cross-border trade. And the cross-border international payment system we mentioned earlier now processes nearly 50 trillion Yuan's worth of trade every quarter, more than double what it was in 2022, and up from zero a decade ago. So what's happened? Why has Yuan suddenly become so much more popular? Well, there are both push and pull factors at play here. The CCP has pulled other countries into using the Yuan by loosening capital controls and expanding their so-called plumbing. The cross-border international payment system, for instance, is being rolled out in Africa, the Middle East, and Central Asia, and now more than 1,700 banks are signed up, compared to about 1,300 in 2022. It's also because the US is pushing other countries, especially Asia, away from the dollar, and towards the Yuan. This is both because of Trump's unorthodox economic policies, including his willingness to put pressure on the Federal Reserve, but also because of America's continued enthusiasm for economic and financial sanctions, like the ones recently imposed on Russia's big oil companies. Now, to be clear, the Yuan is not yet a rival to the dollar, and still accounts for a far lower share of global transactions and reserves. Nonetheless, the parabolic rise of the Yuan's use in transactions and cross-border payments does suggest that it's beginning to enjoy the advantages of what economists call network effects. In other words, it's because more people are using the Yuan, it's becoming more attractive, which means more people use it, etc. This is the same reason that the dollar's reserve status has persisted for so long. Everyone already uses dollars, so everyone else uses dollars, because it's easier. While it's hard to see the Yuan usurping the dollar anytime soon, if this trend continues, it might plausibly offer an alternative in a future multipolar order. If you're interested in learning more about this topic, then there's plenty of other outlets reporting on it online. But what about everything you don't see? Or what about the sources you've grown to trust that are purposefully leaving out information? Thankfully, our sponsor this week, Ground News, are experts at lifting the veil on media bias. 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For instance, if we go back to this story on the new Yuan payment system, we're able to learn that the left emphasises specific financial actions, portraying them as positive steps that boost and are accelerating Yuan internationalisation, while the right de-emphasises these details, instead framing BRICS as an entity to counter US power, and focusing on the fact that non-Western payment systems are gathering pace, while characterising US tariffs as a weapon. But that's not all. For stories that have been disproportionately covered by one side of the political spectrum or the other, their aptly named blind spot feed puts all of those into one place, to help you stay grounded and informed. So if you want to begin questioning the narrative, instead of just consuming it, you can get started today, as we're partnering with Ground News to offer you 40% off their Unlimited Access Vantage Plan. 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