China Aims to Expand Yuan's Global Role and Reduce Reliance on the Dollar

Chinese Banks Urged to Promote Yuan-Dominated Imports and Exports

The Chinese central bank has reportedly instructed state-owned entities to prioritize the yuan when settling cross-border transactions. According to a Reuters report, the People’s Bank of China (PBOC) is said to be encouraging Shanghai commercial banks to expand cross-border credit expansion. This is intended not only to lower yuan financing costs but also to promote yuan-dominated imports and exports.

The move by the PBOC is seen as Beijing’s attempt to hasten the “internationalization” of the yuan and diminish its need for U.S. dollars. The Chinese central bank’s decision to encourage what is effectively de-dollarization appears to be in response to the United States’ tariff war Beijing, which has seen the Asian economic giant’s exports to the United States slapped with an effective tariff of 245%.

Encouraging China’s trading partners to swap the dollar with the yuan is likely to irk U.S. President Donald Trump, who previously warned of severe consequences for nations pursuing this path. As reported by Bitcoin.com News, the U.S. leader previously threatened a 100% tariff on nations attempting to ditch the dollar.

Trump also stated that countries involved in efforts to challenge the dollar’s hegemony would be blocked from doing business with the U.S. At the time, Trump’s threats prompted countries thought to be seeking to create an alternative reserve currency to distance themselves from such initiatives.

However, the Trump administration’s decision to slap China with the massive tariff rate despite it refraining from seeking to de-dollarize, at least publicly, may have forced Beijing’s hand. Explaining the rationale behind the push to have the yuan more widely used in international trade, the PBOC said:

It will strengthen the construction of the Cross-Border Interbank Payment System (CIPS) … study and push forward with the application of blockchain technology, and provide safe and efficient settlement and clearing services for global trades, shipping, investment and financing denominated in yuan.

In addition to internationalizing the yuan, the PBOC announced it will facilitate collaboration between the Shanghai Gold Exchange and international counterparts to promote the broader use of yuan-based benchmark prices in major global markets.