The dollar has long been the world’s primary currency, giving America unusual sway over international affairs. But China’s yuan is emerging as a small-but-growing competitor, with consequences for U.S. power and influence.
China is building an “alternative financial system” designed to weaken the United States’ “power to dictate world affairs,” said The Wall Street Journal. The dollar is still used in 80% of international trade, and that dominance has given U.S. governments a “big advantage in policing global business.” But transactions conducted using Chinese currency allow some businesses and rival countries to evade the U.S. banking system. That is how Iran earned up to $43 billion in oil revenue in 2024 despite restrictive American sanctions. And such examples are growing in number: The yuan’s share of global finance has “tripled over the past five years,” still well behind the dollar but ahead of the euro.
The yuan is emerging as a “more important part of the global financial system,” Robin Harding said at the Financial Times. But it does not yet threaten the dollar’s dominance, in part because “China’s economic model depends on its own relentless accumulation of dollar assets.” Beijing “wants to buy oil in its own currency,” but it also wants to maintain its “massive trade surpluses” with the rest of the world, and those transactions are conducted in dollars. There is “little sign of the dollar losing control of the global financial system.”
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Beijing “cannot decree demand” for the yuan, Agathe Demarais said at Foreign Policy. While China has “made genuine progress in building alternative financial channels” to U.S.-dominated systems, it “cannot translate its rising global trade footprint into greater use of its currency.” That is because China puts strict controls on the use of the yuan outside the country, making it “costly and impractical” for foreign firms to use. Absent a “massive shock,” it is unlikely the world will “embrace Chinese financial channels.”
Beijing “doesn’t need to displace the dollar” to weaken U.S. dominance over global finance, said The New York Times. But having an alternative “could expand China’s influence in a financial crisis.” And some countries will welcome that alternative. “There is a desperate desire in the world to escape the clutches” of the America-dominated system, Cornell University’s Eswar Prasad said to the outlet.
What next?
The dollar is still the “dominant currency” for loans to “developing economies,” said Reuters, but there are signs of change. Kenya last year agreed to convert its debt to China (for loans to construct a railway) from dollars into yuan to “cut borrowing costs.” Now countries like Ethiopia, Indonesia, Mozambique, Pakistan and Zambia that have taken loans from China Eximbank are considering similar restructuring, and the bank is “encouraging — and in some cases requiring” national borrowers to “borrow in yuan rather than dollars.”
