• Market observers describe the effort as a geopolitical hedge as much as an economic initiative, designed to reduce dependence on Western financial infrastructure

ISTANBUL

As China intensifies its campaign to elevate the yuan to global reserve status, questions prevail over whether structural limits could keep the currency from challenging the dominance of the US dollar anytime soon.

Chinese President Xi Jinping renewed the strategic push in a February article in Qiushi, the Communist Party’s flagship theoretical journal, framing a strong currency and modern financial system as pillars of national power. Beijing is expanding yuan-denominated trade settlements, promoting currency swaps, and deepening financial ties with BRICS partners in what analysts view as both an economic and geopolitical project.

Xi’s article stressed the need to accelerate the creation of a modern financial system, including improved regulation, diversified financial services, and “independent, controllable, safe and efficient financial infrastructure.”

Pan Gongsheng, head of China’s central bank, also recently framed the effort in geopolitical terms, saying that “the global dominant currency tends to be instrumentalized or weaponized,” and highlighted the digital yuan (e-CNY) as a key tool for internationalizing the renminbi and countering dollar dominance.

Analysts say China’s push reflects concern about sanctions exposure and the vulnerability of dollar-centric finance.

China has expanded currency swap lines and encouraged yuan use in trade financing and lending, moves that Brad Setser, a senior researcher at the Council on Foreign Relations, described as insurance against US sanctions rather than a genuine replacement for the dollar.

Experts also stress that the yuan’s rise is constrained by capital controls, low interest rates and Beijing’s priority on financial stability over full convertibility.

“It is likely to remain a tertiary or secondary reserve currency for the next decade. It is a long way from challenging either the dollar or the euro,” Setser told Anadolu.

A multipolar currency landscape

International Monetary Fund data show the dollar remains the backbone of global reserves, though its share has gradually declined.

Global reserves totaled $13 trillion in the third quarter of 2025. The dollar accounted for 56.92%, down from 71.19% in 1999.

The euro’s share rose to just over 20%, while the Japanese yen accounted for roughly 5.8%. The yuan’s share remained small, hovering around 2% and slipping slightly in the third quarter of 2025.

These figures, according to analysts, underscore both diversification trends and the persistence of dollar dominance.

Setser said the yuan already functions as a tertiary reserve currency, heavily used by Russia and modestly by countries seeking diversification.

He identified two major constraints: China’s “distorted domestic financial system,” which limits capital account liberalization, and weak domestic demand that keeps interest rates low.

“So long as it is managed against the dollar, yuan reserves are basically dollar reserves with lower yields and more seizure/lock-up risk, at least for countries that are not geopolitically aligned with China,” he explained.

Global interest in the yuan has declined in part because ultra-low Chinese policy rates reduce its attractiveness.

Russia holds yuan out of necessity, he said, while other major reserve holders retain closer alignment with Western financial systems.

Setser emphasized that the world already operates within a multipolar currency framework anchored by the dollar and euro.

“Global reserve holdings of the euro – over $2 trillion – are also substantial, though clearly much smaller than dollar reserves.”

While the dollar remains dominant, rising European interest rates and geopolitical concerns could make euro assets more appealing, he added.

Internationalization gaining renewed priority

Asian markets expert Sadi Kaymaz said China’s goal of internationalizing the renminbi is longstanding but may be gaining renewed urgency.

“However, the issue gained more prominence at a time when confidence in US assets began to erode,” Kaymaz said.

He noted that Qiushi carries special weight within the Communist Party’s political ecosystem.

Xi’s speeches are often published there first, and the journal is regarded as essential reading for the party’s 100 million members.

“The discourse of internationalization is not new, but its publication in Qiushi and the official press drawing attention to it and bringing it to the agenda beforehand may need to be viewed in this light,” he said. “The internationalization of the renminbi may be gaining priority.”

Kaymaz stressed that full convertibility remains the core hurdle.

“Everyone should be able to buy and sell it whenever they want. China is concerned that doing so would jeopardize its financial stability.”

China briefly liberalized financial markets in 2015, he noted, but reversed course after large capital outflows destabilized markets.

Without capital account liberalization, transparent markets and stronger yields, economists say the yuan is unlikely to rival the dollar or euro as a primary reserve currency in the foreseeable future.

Instead, China’s currency appears poised to expand its role at the margins – particularly in trade finance, bilateral lending and geopolitically aligned partnerships – while the global financial system remains anchored by established reserve currencies.