Analysis: Why Yuan’s Allure Is Growing Amid Global Trade Strife

Expectations that the yuan will play a more significant role internationally have strengthened in recent months, as the Chinese currency has remained stable despite ongoing tariff-driven geopolitical tensions and a weakening U.S. dollar[para. 1]. After U.S. President Donald Trump imposed tariffs in April, there were widespread concerns that China might let its currency devalue to mitigate the expected impact on exports[para. 2]. Indeed, the yuan depreciated notably when the tariffs were first enacted, reaching a yearly low of nearly 7.35 to the dollar on April 9. However, in the following three months, the onshore yuan stabilized, consistently closing between 7.15 and 7.25 per dollar since May[para. 3].

China’s central bank has played an active role in maintaining this stability. The People’s Bank of China has often set the yuan’s daily reference rate stronger than the prior day’s closing price—a clear signal of intent to prevent significant depreciation[para. 4]. According to Miao Yanliang, chief strategist at China International Capital Corp. Ltd. (CICC), while short-term fluctuations driven by factors like tariffs are inevitable, the yuan is not expected to remain a weak currency in the medium to long term[para. 5].

In contrast, the U.S. dollar has weakened notably this year. As of Friday, the U.S. Dollar Index had dropped to below 100, down from around 109 at the start of the year, representing a 10% decline[para. 6]. The dollar traditionally attracts global investors due to its liquidity, central role in trade and financial markets, and its function as a store of value. However, recent contradictory and inconsistent U.S. policies have accelerated ‘de-dollarization’ efforts, prompting investors to reassess risks and returns[para. 7]. Stephen Chiu, chief Asia FX strategist at Bloomberg Intelligence, noted that 2025 could be the first year in over a decade where markets are truly trading on de-dollarization, as seen by simultaneous declines in the dollar, U.S. Treasurys, and equities in April[para. 8].

This situation presents new opportunities for the yuan internationally. If the market expects the yuan to appreciate—an expectation that has been growing since May due to easing economic pressures in China and moves to de-escalate U.S.-China trade tensions—it could reinforce the currency’s global status[para. 9]. The trade relationship between China and the U.S. stabilized substantially after a tariff truce was announced in May, which suspended some additional levies for 90 days and was reiterated during London talks in June[para. 10]. In August, this truce was extended by another 90 days after further high-level discussions in Sweden[para. 11].

Market confidence in China is rebounding, particularly as the property crisis abates and the government increases fiscal and monetary support[para. 12]. UBS forecasts that the yuan’s share of global foreign exchange reserves could rise to 5% in the coming years, more than double the 2.12% recorded by the IMF in early 2025[para. 13]. International demand for yuan assets is rising, with foreign investors buying a net $10.1 billion in Chinese mainland stocks and funds in the first half of 2025—a reversal from the previous two years’ net outflows[para. 14].

To accelerate internationalization, experts recommend issuing more yuan-denominated financial products, especially offshore bonds in liquid markets like Hong Kong[para. 15][para. 16][para. 17][para. 18]. These measures are seen as key steps toward cementing the yuan’s role as a global currency[para. 19][para. 20][para. 21][para. 22].