China pushes Yuan use in trade as US tariff shake global markets

As trade tensions escalate between the world’s two largest economies, China is doubling down on efforts to internationalise its currency.

In its latest move, the People’s Bank of China (PBOC) has directed major domestic lenders to boost the use of the yuan in cross-border transactions, a clear signal that Beijing is preparing for a more volatile global financial order.

According to Bloomberg, the central bank has raised the floor ratio for yuan-denominated trade transactions from 25 per cent to 40 per cent, under its Macro Prudential Assessment framework. While not mandatory, the guidance is significant for banks that fall short of the ratio are often penalised with lower regulatory scores, potentially impacting their future expansion.

The PBOC has not issued an official comment on the development.

Yuan push amid tariff tremors

This move comes just weeks after US President Donald Trump hiked tariffs on Chinese goods to as high as 145 per cent, reigniting trade tensions that have already rattled global markets. China retaliated with its own tariff increases, though both sides agreed to a 90-day truce earlier this month, as per Reuters.

But the yuan directive suggests that China isn’t waiting idly.

As reported by Bloomberg, the sharp increase in yuan transaction requirements reflects Beijing’s determination to reduce reliance on the US dollar and bolster the yuan’s role in global commerce. The move is widely seen as part of China’s long-term de-dollarisation strategy.

Global trade shifting away from the dollar

The timing is no coincidence. Across Asia, nations are beginning to explore alternatives to dollar-based trade, especially amid rising geopolitical tensions. According to Bloomberg Intelligence, a broader shift to bypass the dollar in favour of local currencies is gaining momentum — with China, India, and ASEAN countries leading the charge.

China has already made notable progress. The country’s goods imports and exports totalled 43.8 trillion yuan (6.1 trillion US dollars) in 2024, with 30 per cent of those transactions now settled in yuan, according to central bank Governor Pan Gongsheng, speaking in January.

To further boost cross-border yuan use, Chinese banks have been instructed to offer discounted service fees to exporters and importers, while also enhancing foreign exchange hedging services, especially in cities like Shanghai. These initiatives are part of a broader effort to streamline cross-border settlements and increase the attractiveness of the yuan.

A currency strategy with geopolitical weight

While the yuan’s international share still lags behind the dollar and the euro, China’s latest directive is reportedly expected to boost demand for its currency, particularly among trade partners wary of dollar volatility.

The onshore yuan has risen 1.57 per cent this year, now trading at around 7.187 per US dollar, Bloomberg reports. Analysts say a stronger and more widely accepted yuan could help insulate China from the financial impact of future US sanctions or tariffs.

This strategic currency push could also offer China more leverage in ongoing trade negotiations, signalling to the US that it has tools beyond tariffs to shape the future of global trade.

Beijing’s move underscores a deeper economic ambition: reshaping the global trade system to favour a multipolar currency environment where the yuan plays a central role. It also signals growing unease with Washington’s use of financial dominance as a geopolitical tool.

As per Bloomberg, Chinese regulators are expected to continue rolling out incentives and regulatory tweaks to accelerate this transition, especially as Trump’s economic nationalism fuels uncertainty in global markets.

Whether the world is ready to shift away from the dollar remains uncertain. But what is clear: China is not waiting for an invitation.