Yuan Growing in Use in Cross-Border Trade: The Kiplinger Letter

To help you understand the situation with international trade, cross-border payments and what we expect to happen in the future, our highly experienced Kiplinger Letter team will keep you abreast of the latest developments and forecasts (Get a free issue of The Kiplinger Letter or subscribe). You'll get all the latest news first by subscribing, but we will publish many (but not all) of the forecasts a few days afterward online. Here’s the latest…

The yuan is increasingly used to settle cross-border payments with China. Indeed, the number of transactions between China and the rest of the world settled in yuan has grown by 24% in the first three quarters of this year alone. The yuan now accounts for more than 50% of China’s global transactions for the first time, having dislodged the once-dominant U.S. dollar earlier this year.

Beijing has long harbored ambitions to internationalize its currency. For now, though, the yuan’s rise is largely limited to bilateral trade with countries that align with China politically, including Argentina, Nigeria, Russia and Pakistan. The war in Ukraine, along with the sanctions imposed on Russia, have made many of these countries eager to reduce their dependence on the dollar.

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However, there’s a limit to how far the yuan can rise on the backs of China’s allies, as Beijing conducts roughly 60% of its trade with countries that align with the U.S. And overtaking the buck is easier said than done. 

The yuan still accounts for only 3.7% of global payments by value, a shadow of the dollar’s 46.6% share. Foreign appetite for Chinese assets has also fallen over the past year, as investors fret about tensions with the U.S. and question China’s long-term economic outlook.

This forecast first appeared in The Kiplinger Letter, which has been running since 1923 and is a collection of concise weekly forecasts on business and economic trends, as well as what to expect from Washington, to help you understand what’s coming up to make the most of your investments and your money. Subscribe to The Kiplinger Letter.

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