Dethroning the US$

China is working hard to make the Renminbi (RMB) a widely used currency worldwide and reduce the US dollar’s role in global trade. These efforts are having a significant effect on the global financial landscape. China’s growth in the renminbi, primarily through bilateral agreements with Indonesia to use local currencies for trade, is a strategic attempt to dethrone the American dollar and make the RMB play a key role in the global economy. This change is not just economic; it is also quite geopolitical.

The surge in the yuan comes alongside broad rallies in currencies of Hong Kong, Taiwan and South Korea as investors rush out of dollars and into home currencies. Hopes of a trade deal between the world’s two largest economies have also lent support.

It is a threat to the financial system that has been in place since the conclusion of World War II. China’s attempt to promote the renminbi in 2025 shows that it wants to become a significant world power and lessen the United States’ influence on the world stage. The Bretton Woods Agreement in 1944 made the US dollar the world’s reserve currency, which is why it has been the most important currency in commerce for decades. Because the US is so powerful, it can trade deficits without having a significant effect on the economy right away. It uses the dollar’s standing to keep its power in international financial markets. However, in the last 10 years, emerging economies have become even more unhappy with the dollar’s central role in global trade. Many countries seek other options to protect themselves from US monetary policy and economic sanctions.

China, the world’s second-largest economy and a major player in global commerce, has led efforts to reduce the dollar’s influence in the global financial system. Indonesia and China have agreed to trade in their currencies instead of the US dollar. This is a big step forward in this quest. Indonesia is an important trading partner for China in Southeast Asia, and its commerce has been affected by changes in the dollar’s value for a long time. Both countries want to protect themselves from the dollar’s volatility and lessen the American impact on their commerce by using their currencies — Indonesia’s Rupiah (IDR) and China’s Renminbi (RMB) — for transactions. China’s overall economic plan is likewise tied to the emergence of the renminbi.

China has worked to get the RMB into important global financial institutions to make it more widely used worldwide. In 2016, the RMB was included in the International Monetary Fund’s Special Drawing Rights (SDR) basket. This was a big step toward making the currency a worldwide reserve asset. This action made China a key player in the global financial system and made other countries think about using the renminbi instead of the US dollar for trade. China’s Belt and Road Initiative (BRI) has helped the strategic push for the internationalisation of the Renminbi. The BRI intends to improve commerce and connectivity between China and countries in Asia, Africa, and Europe. Through this programme, China has pushed its trading partners to use the RMB in their dealings, especially for infrastructure projects and energy deals. China is establishing a network of economies that increasingly depend on the renminbi as the main currency for trade by promoting it in high-value and long-term projects. This, in turn, makes the renminbi more popular worldwide and makes the dollar less important for international trade.

From a geopolitical point of view, the renminbi’s growth means that the balance of power in the world’s financial system is changing. The US dollar’s supremacy has helped the US economy and has been a significant tool for US geopolitical power. The US has exploited its power over the dollar to punish countries that disagree with its political goals by hurting their economies. Iran, Venezuela, and Russia are some of the countries that have had much trouble with their economies because they are not part of the US-dominated financial system. China’s attempts to promote the renminbi are about competing with other countries’ economies and making the global financial system more balanced. China is showing its economic strength by relying less on the dollar and testing the American ability to employ financial penalties as an instrument of foreign policy.

Also, the fact that the US dollar is the most important currency in world trade has made the latter less vulnerable to outside economic influences. The dollar’s position lets the US keep running trade deficits because other countries are eager to store assets worth dollars. However, as more countries choose to trade in the renminbi and other local currencies, the US may lose some of the economic benefits of having the world’s most important currency. This change could change how the US deals with other countries, especially regarding its monetary policy and its power through organisations like the International Monetary Fund (IMF) and the World Bank. China’s attempts to launch yuan-pegged stablecoins as part of a broader strategy to boost the renminbi’s global role have also been outlined in recent reports, where the State Council will unveil a roadmap to highlight how these digital assets could be deployed to challenge the dominance of the US dollar in cross-border transactions. Hong Kong and Shanghai are expected to serve as pilot regions for the initiative. This action signifies a significant shift in China’s position regarding digital assets. After banning all cryptocurrency activities in 2021, Beijing is now exploring state-backed stablecoins to counter the overwhelming presence of dollar-backed tokens, which currently hold over 99 per cent of the market. The plan includes clear targets for renminbi adoption, regulatory responsibilities, and risk management protocols.

Despite the ambition, significant hurdles remain. China’s strict capital controls limit the free flow of funds across borders, and the renminbi accounts for only about 2.9 per cent of global payments, according to SWIFT data. These constraints could slow the currency’s international uptake. However, leveraging Hong Kong’s established financial infrastructure as a regulatory sandbox may help overcome some of these barriers. China’s stablecoin initiative unfolds against a backdrop of intensifying regional competition. South Korea and Japan are also developing their own digital currency projects to strengthen their currencies’ positions in the global market. The yuan-based stablecoins could be showcased at the upcoming Shanghai Cooperation Organization summit in Tianjin, signaling China’s intent to position itself at the forefront of a digital currency race with the West. If successful, the introduction of yuan-backed stablecoins would represent China’s most significant digital currency development since the launch of the e-CNY. It would also demonstrate a strategic use of blockchain technology to enhance the renminbi’s appeal in global trade and finance. The ultimate impact will depend on political will, regulatory execution, and the willingness of international markets to embrace a Chinese alternative to dollar-backed assets.

China’s plans to internationalise the renminbi has now led some to argue that digital currencies – Bitcoin, stablecoins, or one issued by central banks – will erode the dollar’s role. Banks have traditionally dominated the international payments system, making a tidy profit by skimming off a tiny fraction of every transaction as it passes through their hands. Non-banks have worked themselves into the payments system by offering extra services, providing credit, or convenience. Amex, Visa, Mastercard, Apple Pay, Wise, Afterpay, Alipay, and WeChat have all found a niche. But the complex bank-based system is still at the core of international transfers, with the dollar playing a key role, as conversion between currencies (say, from renminbi to euro) is efficiently implemented via a two-stage transaction using the deep dollar market to intermediate these currencies. Around 50 per cent of international transactions involve the US dollar. Swift does the secure messaging, Fedwire and CHIPS implement the dollar leg, and a network of correspondent banks completes the transfer.

Bitcoin has staked out a role in anonymous illicit transactions (more convenient than suitcases of cash) for those wishing to avoid official scrutiny, but it is unattractive for legitimate payments. It is uncertain in value, costly to transfer, inconvenient, and may turn out to be a Ponzi scheme. Stablecoins – a digital currency with a fixed value and backed by asset holdings such as Treasury bonds – are being promoted as a means of payment, especially for international transactions. Stablecoins meet the requirements of payments far better than Bitcoin, although so far they represent only a tenth of Bitcoin’s total value. They offer the prospect of becoming a platform for technological innovation, such as programmable payments – payments conditional on other events, for example, such as the arrival of an import shipment. If both sender and receiver used the same stablecoins (e.g. both use Tether dollars), direct transfer across borders would be feasible, bypassing the bank-based transfer processes.

If America over-reaches with its sanctions, or if US President Donald Trump trashes trust in the dollar through policy incompetence or damaging institutions like the Federal Reserve, countries will find workaround payments methods that bypass the traditional dollar-based infrastructure. For the foreseeable future, challenges galore, but it’s not to be forgotten that China’s yuan finished the domestic trading session in May this year at a six-month high against the dollar, underpinned by an unwinding of carry trades and a broader rush out of US assets and back into Asia. The onshore yuan ended the domestic session at 7.2169 per dollar, the strongest such close since November 11, 2024, and up 0.76 per cent on the day.

Meanwhile, Chinese major state-owned banks were seen busy buying US dollars and selling yuan in the onshore spot market, in an apparent attempt to slow the pace of yuan rises. As Trump set about to single-handedly reorganise global trade and supply chain flows, only one headline seems to have given him pause. In times of market stress, US Treasuries are the safe-haven investment, but as markets plummeted after “Liberation Day”, bond yields initially fell as investors looked for shelter. Then, after days of chaos and confusion, government bonds too started to be sold. Treasuries were no longer the safe bet. Soon after, Trump paused most of the tariffs except on China. As treasuries sold off, and it became clearer that China was the prime villain in Trump’s trade drama, the question was asked, and might China be dumping its vast US holdings? Has Beijing hit the economic nuclear red button? A few days later, reports that China had stopped investing in US private equity only amplified the idea that the Asian giant was perhaps trying to use its financial clout to pressure Wall Street to get Trump to restrain himself. However, there seems to be more to this story!

Views expressed are personal