The Rising Influence of the Yuan in Global Finance
The yuan’s journey toward internationalization continues to show a steady, albeit uneven, upward trend. This shift is gradually reshaping the global monetary order, according to a recent study presented at a high-profile economic forum in Beijing. However, some participants expressed concerns about the potential risks posed by U.S. efforts to maintain dominance in digital finance.
The report, conducted by Renmin University and released at the International Monetary Forum, highlighted that the yuan’s internationalization index increased by approximately 11% in 2024, reaching 6.06. In contrast, the U.S. dollar saw a slight decline, scoring 51.13 in 2024 compared to 51.52 in the previous year. The euro also experienced a drop, falling 3.8% to 24.07 on the index.
The yuan now ranks ahead of the British pound (4.47) and the Japanese yen (3.69). The report forecasts that the Chinese currency will continue to strengthen, widening the gap with both the British pound and the Japanese yen.
China’s Strategic Push for the Yuan
Beijing has been steadily working to increase the yuan’s global presence, especially as it focuses on managing risks related to cross-border capital flows. The report emphasized that the spillover effects of geoeconomic shocks have impacted not only China’s real economy and financial markets but also disrupted global trade, investment systems, supply chains, and international financial markets.
Promoting the yuan’s internationalization and using it to push for reform of the global monetary system is seen as a key strategy to mitigate these geoeconomic risks. The report noted that the upward trend remains unchanged and is “driving a gradual adjustment in the international monetary landscape.”
Concerns Over U.S. Digital Finance Dominance
Despite the progress, forum participants raised concerns about the growing influence of U.S.-backed stablecoins. These digital assets could consolidate the dollar’s dominance and introduce new systemic risks. Chen Yulu, former vice-governor of the People’s Bank of China, warned that certain countries are pushing for premature regulatory frameworks for stablecoins through legislation and long-arm jurisdiction, while suppressing the development space for other nations’ digital currencies.
If this trend continues unchecked, it could pose significant risks to the global economic and financial system. Chen, now president of Nankai University, highlighted the potential for major risks from single-asset volatility, where shocks to the U.S. dollar and Treasury bonds could spread from stablecoins to the broader crypto ecosystem and even global financial markets.
Stablecoins, which can be pegged to any fiat currency, are predominantly backed by the U.S. dollar or dollar-denominated assets. This far exceeds the greenback’s roughly 50% share in global payments and 58% share in global foreign exchange reserves.
U.S. Legislation and Its Implications
Earlier this month, the U.S. House of Representatives passed landmark stablecoin legislation, signed into law by President Donald Trump. For the first time, it established federal oversight for dollar-pegged stablecoins. At the forum, Li Lihui, former president of the Bank of China, argued that Washington’s moves aim to anchor stablecoins to the dollar to “secure global monetary and financial hegemony in the digital era” and expand demand for U.S. Treasury bonds.
This approach would effectively tie the risks of the crypto asset market to those of the traditional financial system. Li added that if the U.S. fails to address its twin deficits, it could trigger a financial crisis. An unstable U.S. economy and dollar would inevitably undermine the stability of dollar-backed stablecoins.
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