The Iranian war has led more and more countries around the world to actively use the US dollar as a hedge against risks. Many countries have chosen to use the Chinese yuan instead, which is rapidly enhancing its status in the international payment system. According to analysis cited by the Hong Kong-based South China Morning Post on June 11, the yuan is expected to surpass the euro and become the world's second most popular international payment currency.
In early April this year, just hours after U.S. President Donald Trump threatened to "bury Iran back in the Stone Age," the daily transaction volume of the Cross-Border Payment System (CIPS) soared to 1.22 trillion yuan. This was almost twice the average daily transaction volume in February, setting a record for daily transaction volume.
The report indicates that this growth is closely related to the rapid increase in the proportion of RMB settlements in global energy trade, especially in international crude oil trade. Under the traditional ‘petroleum dollars’ system, oil-producing countries reinvest their profits in assets such as US bonds, thereby consolidating the dominance of the US dollar globally.
Although the Iran war has further accelerated the process of global ‘de-dollarization’, the US dollar still occupies a significant share in the international settlement system. It will take some time for the yuan to surpass the dollar. However, analysts suggest that the likelihood of the yuan becoming the world’s second-largest cross-border payment currency after the euro is increasing in the short term, and this moment may be very close.
In June last year, Pan Gongsheng, Governor of the People's Bank of China, stated that, calculated on a full scale, the RMB has become the third largest payment currency in the world and the second largest trade financing currency globally.
All signs point to the euro being overtaken soon. Shanghai Jiao Tong University China Institute of Finance vice-dean Liu Xiaochun said, "Frankly speaking, if European economy continues to maintain its current stagnation state, the euro will be overtaken soon."
However, some experts believe that the core significance of the rise of the RMB is not to replace the euro, but rather that the global trading system is evolving towards a settlement model where multiple currencies coexist. Different regions, industries, and political factions will use different currencies for international trade settlements.
French Bank for Foreign Trade's Chief Economist in the Asia-Pacific region, Alicia Garcia Erelo, said that this is more like a gradual and targeted 'de-dollarization' process within China's economic circle.
According to data from the Society for Worldwide Interbank Financial Telecommunication (SWIFT), in April this year, the global share of the Renminbi was 2.85%. It ranked after the US dollar, euro, pound sterling, Japanese yen, and Canadian dollar. This means that its ranking has dropped from being fourth most important during most of 2024.
However, several analysts pointed out that SWIFT statistics do not cover a large number of cross-border RMB settlements that bypass this system. This includes settlements using the CIPS system, bilateral currency swap agreements, and transactions where China directly uses its own currency to settle payments with countries like Russia and Iran. As a result, the international usage scale of the RMB is underestimated.
Russian official data shows that currently, almost all bilateral trade between China and Russia is settled in local currencies, with the Renminbi accounting for the majority of transactions.
Liu Xiaochun said that a significant portion of transactions between China and Russia are completed through direct clearing mechanisms in small and medium-sized banks along China's northeastern border, without the need for the SWIFT system. This is mainly because 'many countries are seeking to avoid U.S. or Western sanctions, or to prevent the U.S. from tracking their every move.' Moreover, it's not just the Renminbi; any currency that can bypass SWIFT would be preferred by countries.
China Industrial and Commercial Bank's senior financial manager and non-resident researcher at the Global Think Tank, Matteo Giovannini, analyzed that countries under sanctions or seeking greater strategic autonomy are increasingly inclined to use the Renminbi for international settlements, in order to reduce the vulnerability of their financial systems. Besides Russia, Middle East, Central Asia, Southeast Asia, and some countries in the Global South are also expanding the use of the Renminbi.
A senior executive of a Chinese-funded bank's European branch revealed that since the second half of last year, Southeast Asia and Latin America have been the regions where the internationalization of the Renminbi has grown most rapidly. In Southeast Asia, this growth is mainly driven by trade demands resulting from deep integration with China's supply chain. In Latin America, it is more driven by infrastructure financing and central bank currency swap arrangements.
Giovanni noted that as a major global trading nation, China has naturally driven an increase in the demand for RMB settlement. As more countries consider China as their main trading partner, using the RMB for direct transactions can effectively reduce exchange rate costs and risks associated with currency fluctuations.
In May this year, Canadian Prime Minister Justin Trudeau also stated during a Q&A session at the New York Economic Club that the increasing international status of the Chinese currency and the further opening of capital accounts will be important components in addressing global financial imbalances. He believes that as a major economic power, China should take on more responsibilities in the international monetary and financial systems and accelerate reforms. Canada is willing to provide support in related areas.
Giovanni mentioned that the expansion of the CIPS system, bilateral currency swap agreements, and offshore RMB liquidity pools has made RMB settlement much easier than it was ten years ago.
In recent years, the volume of transactions settled through the CIPS system has been continuously increasing. Financial Times charting
As of March 31 this year, the CIPS system has 194 direct participants and 1,597 indirect participants, with services covering 191 countries and regions around the world.
A report released by the French foreign trade bank in May indicated that the number of direct participants is a key factor determining the CIPS system. Currently, this number has more than tripled compared to 2020. With the new regulations allowing overseas institutions to participate directly in settlement through offshore fund custody institutions, the participation threshold has further decreased, and the growth momentum will continue in the future.
Meanwhile, energy trade valued in RMB has seen particularly significant growth, which has attracted considerable attention from the outside world. This is because oil trade has long been an important pillar of the US dollar's international status.
Chinese media and research institutions have recently widely cited data indicating that in March of this year, the proportion of RMB settlements in crude oil trade between China and the Middle East reached a historic 41%. For the first time, the RMB became the second most common settlement currency, after the US dollar.
Giovanni said that the increasing proportion of the Chinese yuan in energy trade indicates that an international settlement system is emerging with multiple parallel ecosystems. While this does not mean the end of the 'oil dollar' era, the global financial landscape has begun to undergo structural changes.
In addition to trade settlements, the financing capabilities of the Renminbi have also significantly increased in recent years. Analysts point out that due to the continuously lower financing costs of the Renminbi compared to the US dollar, a large amount of international financing demand is shifting towards the Renminbi market. A Chinese bank executive who declined to be named said that the financing costs for Renminbi bonds with a term of three years or less are generally below 2%, while the financing costs for US dollar corporate bonds of the same term usually exceed 4.5%.
Since the second half of last year, the People's Bank of China has slowed down its interest rate cuts, which has kept the RMB exchange rate relatively stable. In the first half of this year, the RMB against the US dollar remained roughly synchronized, while it increased against the euro and the Japanese yen. This further enhanced international investors' willingness to allocate assets in RMB.
According to data, in the first five months of this year, overseas institutions issued a total of 136.5 billion yuan in panda bonds in China, a year-on-year increase of 90.3%, reaching a record high. Countries such as Pakistan and Kazakhstan have also issued RMB bonds. At the same time, the issuance volume of offshore RMB bonds (dim sum bonds) has also increased significantly, with Chinese technology companies becoming the main issuers.
Liu Xiaochun pointed out that the continuous growth of Chinese enterprises' overseas investments has also contributed to the expanding scope of the Renminbi's international use. As more and more overseas factory construction projects utilize Chinese equipment, raw materials, and supply chains, using the Renminbi for direct settlement can effectively avoid exchange rate risks.
In contrast, Giovanni analyzes that Europe's weak economic growth in recent years, the energy impact following the Russia-Ukraine conflict, and the fragmentation of capital markets have all weakened the euro's competitiveness in the international financial system. China, on the other hand, has been actively building systems and payment infrastructure to promote the internationalization of the yuan. "This comparison reflects both China's rise and Europe's slower pace of strategic adaptation."
The 2025 report released by the China Financial 40 Forum (CF40) suggests that the euro still leads the renminbi in terms of financial market openness, international pricing capabilities, transparency and predictability of policy frameworks, as well as legal and regulatory aspects. However, with the continuous advancement of the digital yuan, the development of digital currencies in the Eurozone is relatively slow. China is expected to establish a new first-mover advantage in the era of digital currencies.
As Giovanni said, “We may be entering an era where the dollar still holds a dominant position globally, but the Chinese yuan is gaining influence in Eurasia, energy markets, and ‘South-South’ trade.”
