Trump Assuring Yuan's Future Global Dominance

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BOC has been widening its reach in Southeast Asia . It serves as a clearing bank in Cambodia, Laos, Malaysia and the Philippines. Naturally, BOC plays a key role in highlighting the development of the Hong Kong economy. In 2024 alone, BOC saw a 40% year-on-year increase in the number of cross-border yuan clearing transactions.

The same goes for promoting yuan internationalization. BOC plays a direct role in increasing the yuan's role in commodity settlement, foreign trade invoicing and investment, and financing activities around the globe.

These are just some of the behind-the-scenes efforts to seize the moment as Trump's actions damage the“exorbitant privilege” the dollar enjoys.

This enables Washington to pay a logic-defying yield of 4% on 10-year bonds even as the national debt tops $37 trillion and Trump pushes for new tax cuts and undermines the Fed's independence.

As Caixin Global reports, many investors think that in the first half of 2025, the dollar had the“worst six months in modern history.” It's down more than 13% versus the euro and more than 6% versus the yen .

Along with surging US debt and Trump's effort to fire Fed officials - including Chair Jerome Powell - policy chaos surrounding the president's tariffs is creating a crisis of confidence in the dollar.

This has presented China Inc with a significant opportunity. BOC and China Construction Bank are among the state-owned behemoths promoting yuan-denominated services.

Along with doing roadshows around Asia, banking giants are working to become more integrated in regional economies.

In June, six new foreign banks officially joined CIPS, China's fast-growing alternative to the Society for Worldwide Interbank Financial Telecommunication (SWIFT) system, the globe's main messaging network through which international payments are initiated.

The six include Singapore's United Overseas Bank; the African Export-Import Bank; First Abu Dhabi Bank; South Africa's Standard Bank; Kyrgyzstan's Eldik Bank; and Macau's Chongwa Financial Asset Exchange.

Increasing the yuan's use in trade and finance might be Xi's biggest reform success over the last dozen years. In 2016, China won a place for the yuan in the International Monetary Fund's“special drawing rights” basket joining the dollar, yen, euro and pound. Since then, the currency's use in trade and finance has soared.

This explains in part why the PBOC remains reluctant to cut rates even as China grapples with deflation. Excessive easing now might dent trust in the yuan, slowing its progression to reserve-currency status.

It also might trigger a broader Asian currency war that's in no one's best interest. Tokyo might go all-in on an even weaker yen, pulling it and South Korea into a beggar they neighbor downward swirl.

Memories of 2015 are clearly entering into Beijing's equation. China's move to devalue the yuan by nearly 3% a decade ago triggered a destabilizing capital flight that likely still haunts Communist Party bigwigs. Over the next year, Xi's team had to draw down Beijing's foreign exchange reserves by $1 trillion to restore calm.

For now, the“PBOC is signaling that it wants a stable RMB, probably dashing the hopes of those betting that the RMB will continue to devalue meaningfully against the US dollar,” says longtime China watcher Bill Bishop, who writes the Sinocism newsletter.

Brookings Institution economist Robin Brooks says that in the“medium-term, this does raise the risk of capital flight out of China, especially if the US imposes tariffs.” Generally speaking, Brooks believes a falling yuan won't necessarily shake up the global economy because“the yuan is heavily manipulated and isn't moving.”

Still, risks abound. A weaker yuan could make China an even bigger target with Trump's uniquely anti-China administration. Team Xi might want to avoid drawing Trump's ire with a weaker yuan, particularly while the two sides settle into a trade war truce.

Of course, only Xi and PBOC Governor Pan Gongsheng know for sure what's in store for the yuan. How Beijing responds to both global and domestic risks with yuan policy will keep Asia markets on edge for the rest of the year.