The U.S. dollar dominates global finance, but that dominance may face a credible challenge sooner than expected.
Harvard economist Kenneth Rogoff recently suggested that the Chinese yuan could become a global reserve currency within five years, potentially rivaling even the fast-growing digital assets industry.
That said, the dollar’s position remains deeply entrenched. According to data from the U.S. Reserve, it accounts for 58% of international transactions and has long been regarded as a safe haven currency. Beyond cross-border payments, it also maintains a strong hold over the rapidly expanding stablecoin market. Many of the world’s leading payments networks are U.S.-centric, including the global systems operated by Visa and Mastercard.
This dollar-heavy global financial ecosystem has proven difficult to displace, reinforcing the currency’s central role in global commerce—even as geopolitical tensions and trade conflicts have intensified.
China, however, has been working to change that. It has long sought to expand the role of the yuan in global payments. Although these efforts have yet to gain much traction—the Fed estimates the yuan is used in only around 2% of cross-border payments—there are signs that its role could grow.
Bucking Western Estimates
According to the South China Post, one reason Western estimates of yuan usage may be understated is that they don’t fully account for transactions conducted through China’s Cross-Border Interbank Payments System (CIPS). Developed as an alternative to the U.S.-backed SWIFT—a cornerstone of global payments—CIPS has become a crucial part of China’s strategy.
China has prioritized expanding CIPS, even easing some regulations to introduce new programs with countries such as Vietnam and Indonesia. These cross-border integrations enable QR code transfers, allowing domestic merchants to accept payments from Chinese travelers.
Cementing the Currency’s Standing
Separately, China has also focused on its central bank digital currency—the digital yuan—which has gained more ground than many other CBDCs globally.
Still, the yuan is far from challenging the U.S. dollar. Rogoff acknowledged this and laid out steps China could take to further cement the currency’s global standing, including opening its government bond markets to foreign investors and continuing to expand CIPS as a viable alternative to SWIFT.
In many ways, China’s payments strategy mirrors that of the European Union, which has also reprioritized its CBDC efforts and sought to bolster the euro’s role in cross-border payments. However, while strong government backing may drive incremental shifts, it remains to be seen whether these efforts will be enough to overcome the dollar’s entrenched position at the center of the global financial system.
