The Chinese Currency Against the Reality of the Global Reserve System

WalletsWatcher · 2026-02-12T19:14:57+00:00

The renminbi faces challenges in becoming an international reserve currency due to capital controls and central banks' preference for more liquid assets. Although China has made progress in payment technology and the digital yuan, structural reforms are needed to improve its convertibility and attract more global reserves.

WalletsWatcher

2026-02-12 19:14:57

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The renminbi faces structural obstacles in establishing itself as China’s international reserve currency. Although China has invested significantly in modernizing its payment infrastructure and promoting the yuan in global transactions, capital controls remain a fundamental barrier limiting its widespread adoption among central banks worldwide.

The figures reveal a complex landscape. According to data from NS3.AI, the renminbi’s share in international reserves showed a downward trend, dropping from 2.83% in 2022 to an estimated 1.93% by 2025. This contraction reflects central banks’ preferences for more liquid and fully convertible assets, a criterion currently favoring other currencies.

The CIPS System and Digital Yuan: Insufficient Progress

China has developed sophisticated technological tools to facilitate cross-border transactions. The Cross-Border Interbank Payment System (CIPS) and the gradual digitization of the yuan represent significant efforts. However, these advances face an uncomfortable reality: issuing institutions prefer to hold their reserves in assets with higher convertibility and perceived stability.

The Rise of Digital Alternatives

China’s rigid capital controls have created a vacuum that other solutions are filling. Stablecoins pegged to the US dollar and Bitcoin have gained ground as alternative instruments for settlement and store of value. These crypto assets offer an attractive feature: the ability to operate outside restrictive regulatory frameworks, allowing international actors to access payment methods and store value that bypass Beijing’s restrictions.

Future Outlook and Pending Reforms

The future trajectory of the renminbi as a reserve currency will largely depend on upcoming political decisions. Without structural reforms that substantially improve convertibility and loosen capital controls, reserve asset diversification is likely to continue favoring alternative currencies and crypto assets. For China’s currency to regain prominence in the international financial system, China will need to balance macroeconomic stability with opening its capital markets.

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