Analysis: China Fortifies Its Financial Defenses

China is implementing a multi-pronged strategy to address geopolitical risks and promote the internationalization of the yuan (RMB), aiming to increase financial system resilience and enhance the yuan’s global standing [para. 1]. One of the central initiatives is encouraging the use of the yuan for international trade settlements, especially in commodities. As the world's largest energy consumer, China has worked to reduce dependency on the U.S. dollar by introducing yuan-denominated commodity futures at the Shanghai International Energy Exchange. This initiative offers an alternative model for pricing and settling crude oil and similar trades, moving away from the traditional dollar-centric system. As tensions with the U.S. have increased, China has diversified its trading partnerships and actively advocated for wider yuan adoption in global trade [para. 2][para. 3].

China is also strengthening the role of the Cross-Border Interbank Payment System (CIPS), which was launched in 2015, to support more efficient global payments and facilitate the yuan’s integration into international finance. As the U.S. has intensified sanctions and trade measures, more countries have sought alternatives to dollar-based systems, bringing greater attention to CIPS. Russia, for example, shifted some of its foreign exchange reserves into yuan and replaced the New York Clearing House Interbank Payments System (CHIPS) with CIPS following sanctions. CIPS now includes 176 direct and 1,531 indirect participants across 187 countries and regions, predominantly in Asia [para. 4][para. 5].

Another significant pillar of China’s strategy is advancing digital payments. China has been an early adopter, launching its central bank digital currency (CBDC), the digital yuan, at the end of 2019. By mid-2024, the digital yuan pilot had expanded to 26 regions in 17 provinces and municipalities, with broad applications in retail, public transport, and public-sector salaries. The currency was also used as an economic stimulus during the pandemic. Internationally, the People's Bank of China has partnered with the Bank for International Settlements and central banks from Hong Kong, Thailand, and the UAE on the m-Bridge digital currency project to facilitate cross-border payments. The creation of a digital yuan international operations center in Shanghai in June 2024 further demonstrates China’s ambition to lead in digital finance [para. 6][para. 7].

The results of these efforts are evident in the yuan's growing international use. In 2024, the yuan accounted for 4.2% of global payments, 5.5% of trade finance, 5.0% of foreign exchange trading, and 2.2% of foreign exchange reserves—each marking increases from five years prior. The yuan now ranks fourth as a payment currency, third in trade finance, fifth in FX trading, and seventh among reserve currencies globally. People’s Bank of China Governor Pan Gongsheng has highlighted this ascent within a wider context of global dedollarization and the trend toward a multi-polar monetary system [para. 8][para. 9].

Additionally, China has promoted the expansion of bilateral currency swap agreements, with over 30 deals valued at about 4.5 trillion yuan ($618 billion) as of May 2025. This policy supports global liquidity needs and further deepens the yuan’s international reach [para. 10].

In summary, China’s combination of promoting yuan-based trade, developing payment infrastructure like CIPS, embracing digital currency innovation, and expanding swap agreements is expected to foster greater economic security and international influence in the medium to long term. Nonetheless, this process is likely to be gradual, constrained by the requirements for exchange rate stability and global acceptance of new payment mechanisms. Further capital market reforms and increased market openness will be key to sustaining the yuan’s progress on the international stage [para. 11][para. 12][para. 13][para. 14][para. 15][para. 16].