The Chinese yuan has increased its role as the currency of choice to settle global trade deals, increasing its share from just under 2% in 2020 to over 8% by early 2025, according to data from SWIFT.

The shift reflects the ongoing de-dollarisation of global trade, although the greenback still accounts for around 40% of all international trade deals.

As bne IntelliNews reported, Emerging Markets (EMs) are unhappy with the dollar’s domination of global trade settlements and have been increasingly turning to settling trade deals in mutual national currencies. At the same time the BRICS countries have been selling off their US treasury bill holdings as part of the same process of reducing their exposure to the US financial system.

However, there are few alternatives to using the dollar in international trade, as no other currency can offer the depth of liquidity or such a wide spread network of settlement systems. As most countries continue to hold US T bills as the bulk of their international reserves only adds to the appeal and ease of using the dollar in cross border settlements. But amongst possible replacements, the renminbi and euro are leading candidates.

The bulk of the growth of the use of the yuan has occurred since 2022 when central bankers everywhere were shocked by the US’ decision to weaponize the dollar by banning Russia from the SWIFT system and freezing some $300bn of Central Bank of Russia (CBR) funds held abroad.

From that point the yuan’s share increased by approximately 1 to 2 percentage points annually. This is a structural shift. It’s not about replacing the dollar, but about steadily taking marginal share. Beijing is following a policy to gradually build up the use of the yuan as both a trade deal settlement currency and also as a reserve currency. Russia has already dumped the dollar entirely and replaced it with yuan in its reserves basket. President Xi Jinping issued his strongest call yet for China's renminbi to become a global reserve currency and compete head-on with the dollar on February 2.

While the use of the dollar in trade remains widespread, the share of dollars in reserve baskets has fallen much faster, due to the Russian experience.

According to data from the International Monetary Fund’s (IMF) Currency Composition of Official Foreign Exchange Reserves (COFER), the dollar’s share of global FX reserves fell from around 71% in 1999 to below 59% by the end of 2023—a drop of more than 12 percentage points over two decades – with the pace of decline accelerating sharply after 2022.

China has signed a growing number of trade agreements with key partners—including Russia, Iran, Brazil and Saudi Arabia—that settle in local currencies, bypassing the need for dollar clearing and reducing exposure to US monetary policy and sanctions.

At the same time, confidence in the US-led global order has declined. “The world is shifting into two competing blocks,” as bne IntelliNews reported on the increasingly fractured world. “Trust in the US and US institutions is at a record low.”

Critics of US policy point to what they describe as the politicisation of the dollar system, including widespread use of sanctions, asset freezes, and the extraterritorial application of financial laws. The US sanctions friend and foe alike in the increasingly transactional world of the Trump administration. That has forced a reassessment of risk, even for historically close partners, especially following the release of the National Security Strategy (NSS) in December that reintroduces an updated version of the Monroe Doctrine where the US lays claim to the Western Hemisphere.

The fallout from the Russia–Ukraine conflict further accelerated this trend. Following Russia’s removal from the SWIFT banking system and the freezing of central bank reserves, multiple governments have begun to explore alternative settlement systems such as China’s Cross-Border Interbank Payment System (CIPS), the use of yuan-denominated contracts for oil, gas, and metals, and the introduction of digital currencies for trade such as the BRICS Pay coin.

The yuan does not need to replace the dollar to matter. It only needs to keep taking marginal shares to reduce demand for US Treasuries and the dollar – a trend that is already well under way.

The shift comes at a time of mounting fiscal pressure in the US, with deficits near recession-era levels and rising interest costs. The US’ reputation has sunk as its debt has climbed and it has already suffered multiple downgrades from AAA by the leading rating agencies.

To further unnerve central bankers, President Donald Trump has threatened to sanction any country that tries to dump the dollar, adding to uncertainty about Washington’s future commitment to global norms.